ELSS stands for Equity Linked Savings Scheme. ELSS schemes are equity mutual fund schemes approved by SEBI for tax benefits under 80C for invested amount. Such schemes are meant to encourage people to participate in market appreciation instead of stashing money in fixed maturity or insurance product with investment objectives.

Practically there is no limit for allowed investible amount, but in theory, max allowed amount is 1.5L which is max tax deduction allowed under 80C. In case one invests more than available amount to be invested under 80C then such investment does not enjoy 80C benefits. Tax benefits are only available in case one stay invested for 3 years, in case one withdraw funds before 3 years then it’s ownership of the investor to withdraw benefits taken under 80C and pay additional taxes. The investor may be charged exit load in case investment is withdrawn before stipulated time, typically 1 year.

Who should take benefits of ELSS?

If you have the stomach to digest market volatility, as market linked investments are volatile as their inherent nature, and you have space to accommodate ELSS investment under 80C investible amount then ELSS is the good option to save tax and enjoy equity appreciation at the same time.

Who should avoid ELSS Fund?

In case you are having an outstanding home loan because of which all of your 80C investible space is exhausted then I would suggest one to invest in pure equity mutual fund because ELSS funds might invest in debt to provide stability.

Typically we have habits to plan to tax saving investments during last quarter of the year, which is Jan – Mar. This is the time when you will see many tax consultants calling / emailing / visiting us. Instead, I would suggest to have tax planning at beginning of April month and have staggered investment approach via SIP or any other way, this introduces a habit for regular saving and tax planning. If you plan is in last quarter than most of your savings will go into tax planning and in the rush, you might end-up with the product which you might regret at the later stage.

As of writing this post Axis Long Term Equity Fund is most popular in ELSS category. Please refer ELSS section on Value Research for further detailed information.

Axis came up with a good Video to promote their ELSS fund, have a look below.

So, please go ahead and start investment in ELSS fund if you have the stomach to digest its volatility and you have space to accommodate it under 80C.


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