ELSS Mutual Fund- Features, Advantages, Tax Benefit, Deductions under 80C and How to Invest?

When compared to other investment instruments available under Section 80C of the Income Tax Act of 1961, investing in ELSS funds is an efficient way to save taxes. ELSS has a shorter lock-in period and professional fund management, which can result in wealth accumulation. here is all you need to know about ELSS Mutual Fund.

What is an ELSS Fund?

ELSS (Equity Linked Savings Scheme) funds are equity mutual funds that save you money on taxes. The ELSS scheme is an equity-oriented scheme with a three-year mandatory lock-in period.

Features of ELSS Mutual Funds

• The mandatory lock-in period for ELSS funds is three years, the shortest of any tax-saving instrument.
• One can benefit from both capital appreciation and tax savings through equity investments.
• Income generated by ELSS Funds is considered Long Term Capital Gains Tax (LTCG) and is taxed accordingly.

What are the tax advantages of ELSS funds?

Under Section 80C of the Income Tax Act of 1961, ELSS mutual funds provide tax deductions of up to Rs 1,50,000 per year, allowing you to save up to Rs 46,800 in taxes per year. Remember, your investments are guaranteed for three years from the date of purchase.

How to invest in an ELSS mutual fund?

• ELSS funds can be invested in the same way as any other mutual fund. An online investment services account is one of the simplest ways to invest.
• One can invest in a lump sum or through a systematic investment plan (SIP) (systematic investment plan).
• SIP ensures discipline and consistency while lowering capital risk.
• An ELSS fund can be purchased for as little as Rs 500.

ELSS funds provide a cumulative deduction benefit, which means that you can deduct up to Rs 1.5 lakh from your annual taxable income under Section 80C of the Income Tax Act of 1961. In other words, investing in ELSS can result in a tax deduction of up to Rs. 1.5 lakh.

ELSS lock-in period

The mandatory lock-in period for ELSS schemes is three years. When one redeems the units, one receives LTCG (long-term capital gains). Gains of up to Rs 1 lakh are not taxable in a single fiscal year. Without indexation, LTCG gains in excess of Rs 1 lakh are taxed at 10% of the excess gain.

Factors to consider while investing in ELSS?

When deciding whether to invest in an ELSS mutual fund, keep the following factors in mind:

• To consider investing in ELSS funds, you must have a longer investment horizon than five years. To mitigate market volatility, the equity exposure of ELSS funds necessitates a longer investment horizon.
• You should be aware that ELSS funds do not provide guaranteed returns because they are entirely dependent on the performance of the underlying securities. A longer investment horizon, however, can provide higher returns than any other tax-saving investment option.
• ELSS mutual funds are legally locked in for three years from the date of purchase and cannot be redeemed until that time period has passed.