ELSS (equity Linked Saving Scheme) is a type of diversified equity mutual fund which is qualified for tax exemption under section 80C of the Income Tax Act and offers the twin advantage of capital appreciation and tax benefits. It comes with a lock-in period of three years.
Types of ELSS:
There are two categories in ELSS mutual funds i.e. dividend and growth.
The dividend fund is further divided into Dividend Payout and Dividend Reinvestment. If an investor opts for dividend payout option, he receives the dividend which is also tax-free,however,under the dividend reinvestment option, the dividend is reinvested as a fresh investment to purchase more shares.
Under the growth option, an investor can look for longterm wealth creation. It works like a cumulative option whose full value is realized on redemption of the fund.
Among all the 80C deductions applicable investment schemes ELSS earns the highest returns on an average of 15% for a 3 year period.
It requires the least lock-in period of just 3 years when compared to 5 years for tax saving FDs, 15 years in case of PPFs, 10 years in case of NSC investments.
Investor with different degrees of risk taking capacity can choose from a variety of ELSS mutual funds to suite them and earn returns that still outdo returns of other 80 C deduction applicable investment schemes.
The minimum amount of investment to start an ELSS investment is Rs. 500.
ELSS MF investment can be done either as a lump sum or a SIP .
There is an option to choose a growth oriented ELSS or a dividend payout ELSS scheme catering to those interested in capital appreciation and those interested in receiving regular money pay outs respectively.