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ELSS : Equity Linked Savings Scheme


When you are looking at the stock market going up and still afraid to invest in the market, here is an option for you - It is a mix of Mutual Fund and a tax saving instrument. It is called the Equity Linked Savings Scheme. Let us see the benefits of the ELSS:
  • Benefit under Section 80C of the Income Tax (within the overall limit of Rs.1,00,000)
  • The dividends declared is exempt from tax
  • The scheme is for a minimum period of 3 years. This is called Lock in period
  • Since the Fund manager knows that the fund is untouched for 3 years, he has the full freedom to invest to get a good return
  • Being invested for 3 years and more, the proceeds is treated as Long Term Capital Gain and exempt.
  • Since it invest in Stock Market and debt instruments, you get a good return, better than Bank FD, NSC, PPF etc.,
Some points to be noted:

  • But investment in Mutual Funds are subject to market risk.
  • Minimum lock in period of 3 years.
If you have invested in an ELSS for 3 years, you can withdraw the same after 3 years and invest in the same fund. This will be treated as a fresh investment and you get Section 80C benefit. Of course, again 3 years lock in period would apply.

Looking at the tax free return, tax benefit on investment I would suggest this investment, if you have shortfall under Section 80C (apart from investing in your Employee PF, PPF, Insurance premium, Housing loan repayment etc.,).

Cheers,
Gopal

2 comments:

'Arnold' Bala on Jan 16, 2010, 9:35:00 PM said...

Yes Gopal, Investment in ELSS is a wise decision.

I invested in an ELSS in 2005 and was allotted units at NAV 58. At the end of 3rd year, i noticed that it grew up to 119 (more than 100%).

Though it becomes open-ended after the lock-in period 3 years, i didn't redeem as i want it to grow further (but god disposes by bringing it down to 90 during recession). Still, it gave me 50% returns.

Regards
Bala
CFO, www.cogzidel.in

Gopal Ramanan on Jan 16, 2010, 10:30:00 PM said...

Yes, Bala. With the tax benefit of saving 30% u/s 80C, the return would be much more from a finance angle. But i suggest investing in ELSS to use the shortfall in the 80C. Even otherwise it is a good investment plan.
Cheers,
Gopal

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