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.,).



'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.


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.

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