A Post on Explaining ELSS

This is the post that I will try to put up in lay man language as most of my friends, relatives really wanted to blogunderstand why to invest or not to invest money under ELSS for section 80C.

So where all you can invest to save tax if you are salaried employee, Insurance, PPF, NSC, ULIP,

Well I will concentrate on the ELSS – Equity linked Savings Scheme

ELSS is a type of mutual fund, where majority of the corpus is invested equity and equity related products.  Investment in ELSS has lock in period of 3 years and it has tax benefits. ELSS are not at all risk free , there is no fixed return , ELSS are open-ended and investor can subscribe to fund on any given day. 

When I say risk – ELSS are linked to market , so does the ULIP.  For your information in the last 36 years market returns were up 24 times and down 12 times.

I am no comparing the tax savings product here , remember it is just a post for understanding of ELSS :

Some Key points for ELSS :

  1. Equity linked savings schemes is a type of mutual fund with 3 years lock in period and tax benefits attached,
  2. There are three types of options in ELSS, dividend option growth option and dividend reinvestment option.
  3. Tax benefits on investment in ELSS may soon be phased out with the introduction of direct tax code. ( So far not done and it can be delayed).
  4. Investors can opt for systematic investment plan. Minimum investment required in SIP is Rs 500. An investment through SIP has a disadvantage as every monthly investment carries a lock in period.
  5. If an investor chooses dividend reinvestment plan the dividend reinvested is considered as a fresh purchase and has a lock in period of 3 years from the date of purchase so the dividend reinvested is further locked for a period of 3 years.
  6. ELSS has the potential to give higher returns as these funds invest in equity market which have given an average return of 15 years in a long-term scenario. Returns in ELSS also fluctuate depending upon the stock selection decision of the fund manager

Caveat: Invest in ELSS after consulting from your RM or doing by your own study.

Mutual Funds Are Subject to Market Risk – Please Read the Offer Document Carefully Before Investing : Horn Ok 🙂

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