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