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What Is Elss Funds?

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By Author: Swarali Chavan
Total Articles: 36
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Equity Linked Savings Scheme or ELSS funds is an open-ended Equity Mutual Funds which help an investor save and provide an opportunity to grow money. One of the main benefits of equity linked savings scheme is that they provide a tax benefit, that’s why these funds are also known as tax saving mutual fund schemes. ELLS is a diversified, open-ended Equity Mutual Fund that will offer higher returns as well as great tax benefits. The tax exemptions are offered as stipulated according to the Income Tax Act. A large portion of the capital is invested in equity funds. The lock-in period that is applicable on these funds is 3 years and the investors can exit the scheme by selling it after this period.

Equity linked savings scheme generally have a low investment threshold – the minimum amount which can be invested is just Rs. 500. An investor should have the correct knowledge about what is ELSS before investing. The investors can also choose to invest a lump sum of funds at a go, or they can invest on a monthly basis in equity oriented assets through Systematic investment plans. An investor can also invest in businesses that operate in a specific industry or sector through sector funds. An investor should make sure that the fund they have chosen has a long term performance so they will get assured returns. Investors should also look in to other details regarding the fund such as the fund portfolio, volatility of the fund and the expense ratio of the fund, all of these factors should be looked into. Once the ELSS funds meaning is clear to the investor, they can easily invest and earn profits through this scheme.

Advantages of ELSS:

1. The lock-in period is set at just three years, which is low when compared to other mutual funds options.
2. The returns that offered by ELSS are considerably high.
3. The earnings through an ELSS post the lock-in period are exempt from tax.
4. There will be no cap or limit on how they can invest in an ELSS.
5. The power of compounding essentially helps the investors multiply their principal amount and earn them great returns.
6. Investors have the option of earning regular income during the lock-in period, by opting for a dividend scheme under ELSS.
7. Compared to other tax saving financial instruments like bank deposits, PPF and NSC investments, ELSS has the lowest lock-in period.

Why should you invest in ELSS mutual funds?

These schemes will help the investor in building a habit of investing for a long period. Although mutual fund schemes generally come with long-term investments, they are not bound with a fixed lock-in period. By investing for a longer period, an investor can be exempted from paying taxes on the returns earned. With a longer investment option, the investors funds will grow and redeem the benefits after 3 years. As ELSS funds invest the money in equities, there is a possibility of earning good returns.


Author bio: Swarali Chavan is a finance professor who loves study about market investment instruments. She has written on ELSS funds. Through this article, she has provided detailed information on all you need to know about ELSS funds.

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