edited by: Mohammad Haris
Last Update: February 12, 2023, 11:00 IST
The number of units allotted to an investor depends on the amount invested by the investor and the applicable NAV.
ELSS is a mutual fund scheme under which asset management companies invest their corpus in equities with a lock-in period of 3 years.
There are many financial instruments available to invest in the market to save tax. These investments can be claimed as deductions to reduce taxable income. Among these investments is ELSS Mutual Fund – Equity-Linked Savings Scheme. It is a mutual fund scheme under which asset management companies (AMCs) invest their corpus in equities.
What is ELSS?
ELSS is a mutual fund savings scheme through which one can invest in equity. Various fund houses offer this scheme. Some of these schemes are IDFC Tax Advantage, Canara Robeco Equity Tax Saver, Mirae Asset Tax Saver Fund and DSP Tax Saver.
ELSS has a lock-in period of 3 years, before which the investor cannot withdraw his money. They have to complete three years from the date of unit allotment to sell the underlying mutual fund units.
The number of units allotted to an investor depends on the amount invested by the investor and the applicable NAV.
Tax saving through ELSS
“ELSS is an Equity Linked Savings Scheme, which allows deduction under Section 80C of the Income Tax Act 1961 from the total income of an individual or HUF up to Rs 1.5 lakh. Thus, if an investor were to invest Rs 50,000 in ELSS, then this amount would be deducted from the total taxable income, thus reducing his tax burden,” according to mutualfundsahihigh.com.
This can save up to Rs 46,800 annually in taxes.
risk involved
Since the amount under Equity Linked Savings Scheme is invested in equity, ELSS is a very high risk scheme. However, it can also give higher returns in case of market development. ELSS Mutual Funds also have a lock-in period of 3 years. So, if the investor wants to book a loss or profit during the time of volatility, he cannot do so before the completion of 3 years. However, other tax saver instruments like FD have a lock in period of 5 years.
How to invest?
Investors can invest in ELSS through a lump sum amount or through a Systematic Investment Plan (SIP). Under SIP, a specific amount is invested every month. There is no upper limit on the amount an investor can invest in ELSS; While the minimum investible amount varies across fund houses.
“Bump sum investment is not advisable unless the market is in the grip of a bearish trend, and you are prepared to take a higher risk level and have a longer investment horizon. According to Cleartax.in, you miss out on the opportunity to buy fund units across all business cycles, which requires you to stay invested for more than 5-7 years.
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