Equity Linked Savings Scheme (ELSS): What is It?
A diversified, open-ended equity mutual fund with higher returns and excellent tax advantages is called Equity Linked Savings Scheme (ELSS). According to the guidelines in Section 80C of the Income Tax Act, tax exemptions are provided. The capital is primarily invested in equity funds. Investors may withdraw from the programme by selling their investment following the 3-year lock-in term that applies to these funds.
How can I make an investment in an Equity Linked Savings Scheme (ELSS)?
Equity Linked Savings Plans feature a reduced minimum investment requirement. Additionally, investors have the option to use SIPs to make monthly investments in equity-oriented assets or to invest a big sum of money at once (Systematic Investment Plans).
Who can invest in Equity Linked Savings Scheme (ELSS)?
For those just starting out in their professions, Equity Linked Savings Scheme (ELSS) is a wise financial choice. People who don’t make a lot of money but wish to invest in goods with a low level of risk may want to think about ELSS. This plan is especially excellent for investors who generate a significant income from high-risk assets and need a way to reduce their tax obligations.
People can begin investing in Equity Linked Savings Scheme (ELSS) as soon as they begin earning money because there is no age restriction. By investing in the top three or four high-performing ELSS, investors seeking diversity in their portfolios can also benefit greatly from ELSS and generate spectacular returns over time.
Important Things to Know Before Investing in an Equity-Linked Savings Plan
In order to receive guaranteed returns, the investor must ensure that the fund has long-term performance.
Additional information about the fund, such as the fund’s portfolio, volatility, expense ratio, etc., must be investigated.
Advantages of an Equity Linked Savings Plan
ELSS has the shortest lock-in time, which is 3 years, as compared to other tax-saving financial vehicles including bank deposits, PPF investments, and NSC investments.
By choosing an ELSS dividend scheme, investors can choose to receive a regular income during the lock-in period.
What Equity Linked Savings Scheme (ELSS) Investment Options are Available?
Investors who want to put money into ELSS have three possibilities. They are listed below:
Growth Option: With the growth option, there are no dividend benefits for the holders. Benefits are only distributed to holders once the Equity Linked Savings Scheme (ELSS)’s duration is up, and they serve to raise your NAV and hence multiply your gains. The state of the market will determine how much money an investment makes.
Dividend Option: With the dividend option, investors benefit from regular dividend payments rather than a lump-sum payment at the end of the term. The investor will receive the full amount of any dividends received under this option, which are tax-free.
Option for Dividend Reinvestments: Under this option, a holder will have the choice to return any dividends received because doing so will result in the NAV increasing in value. This option is frequently chosen by investors, particularly when the market performs well over the course of the lock-in term of three years.
Characteristics of Equity Linked Savings Plans
Options for dividend and growth – Under their Equity Linked Savings Scheme, the investor has the choice of selecting either the dividend or the growth option. After the lock-in period, the investor in the growth programme will get a lump sum payment. The investor will routinely receive a payout under the dividend plan during the three-year lock-in term.
Tax advantages – An equity-linked savings scheme’s returns are not subject to taxation. According to the provision outlined in Section 80C of the Income Tax Act, up to Rs. 1, 50,000 of the investment may be claimed for tax deduction from the gross total income.
Systematic Investment Plan: The investor can invest in ELSS through a SIP or systematic investment plan. Additionally, it makes it easier to plan and carry out your tax savings.