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What is ELSS Fund - Tax Saving Mutual Fund?

An Equity Linked Savings Scheme (ELSS) is a tax saving mutual fund that allows an individual or HUF, a deduction from total income of up to ₹1.5 lakhs under Sec 80C of Income Tax Act 1961.

  • If an investor was to invest ₹50,000 in an ELSS, then this amount would be deducted from the total taxable income, thereby reducing tax burden.
  • These schemes have a lock-in period of three years from date of unit allotment. After the lock-in period is over, the units are free to be redeemed or switched into any other Mutual Fund. Investors can also invest through Systematic Investment Plans (SIP), and investments up to ₹1.5 lakhs, made in a financial year are eligible for tax deduction

Know more about ELSS Mutual Fund

Watch the video to know more about ELSS Mutual Fund

What are the advantages of investing in ELSS Funds?

Here are some important advantages of ELSS mutual funds

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Shortest lock-in period

ELSS funds have shortest lock-in period of 3 years among other tax saving options like PPF, NSC etc.

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Convenience

In ElSS funds you can Invest in one go as lumpsum or invest in instalments with SIP

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Affordability

Investors can start investing in ELSS funds with as little as ₹500/-

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Higher returns potential

ELSS funds majorly invest in equities & its return capability can be superior to that of other tax saving options

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Tax benefit

Under Section 80C of the Income Tax Act, 1961, ELSS funds can save tax up to ₹46,800/- by investing ₹1,50,000/- per Financial Year.

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Expert management

ELSS mutual funds are monitored and managed by expert fund managers with a deep knowledge about equity

Who should invest in Tax Saving Mutual Funds?

  • ELSS funds are suitable for any taxpayer who is willing to invest in an equity oriented tax savings instrument.
  • ELSS funds are very suitable for the salaried class as they have a regular source of income and need to make tax saving investments every year

Should I invest in ELSS through SIP or in Lumpsum?

  • The choice to invest in ELSS through SIP or in lumpsum depends on when and why are you investing. If you are looking to save tax at the end of the financial year, investing in lumpsum might be your only choice. But if you are investing at the beginning of the financial year, you can either invest in lumpsum or through SIP. ELSS offers tax benefits and also has the growth potential of equities.
  • Investing in ELSS through SIP has two benefits. Firstly, you lower the risk by spreading your investments over the year. Secondly, you can get a better average price for your units by investing at different NAVs through the year as compared to investing in lumpsum at one point in time because of rupee cost averaging. Thirdly, regular investments done in small amounts don't pinch your wallet as compared to a lumpsum investment but you need to ensure that the total amount invested through the year is the same as what you would like to invest in ELSS.
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