In this article, we will be discussing the 11 facts you need to know before investing in the Equity Linked Saving Scheme (ELSS) Funds. So, let’s start!
1) ELSS Fund Category functions like a Flexicap Fund:
- The Equity Linked Saving Scheme (ELSS) is that kind of fund which functions similar to the Flexicap Fund where the Fund Manager has the full flexibility to allocate its full funds to any of the segments like Large Cap, Mid Cap, Small Cap, etc.
- All ELSS are active management funds.
2) No Passive Play in ELSS Category:
- In ELSS Funds there are no Index Funds, Hybrid Funds, or Debt Funds.
- All ELSS funds in the country are active management funds, nor there is any Exchange Traded Funds (ETFs.)
- All the Asset Management Companies (AMCs) are only having one ELSS Fund.
3) Lock-In Period:
- It is well known that ELSS Funds is having lock-in period of 3 years from the date of investment.
4) Tax on Capital Gain:
- If a person is investing in ELSS Funds, then he/she will be eligible to get tax benefits up to Rs. 1.5 Lakh under Section 80 C of the Income Tax Act. But the Long-Term Capital Gain on ELSS is taxed as per other Equity Funds i.e., LTCG exceeding Rs. 1 Lakh for a year will be taxed at 10%.
5) Tax on Dividend:
- If an individual has taken the Dividend plan of the ELSS fund that Dividend Income from the ELSS Fund will be taxed as per his/her respective tax slab.
6) No Minimum Investment Limit:
- There is no minimum as well as maximum investment limit for ELSS. The investment in ELSS can be started from as low as Rs. 100 and there is no upper bar limit.
7) No Requirement for regular money flow:
- For ELSS funds, there is no need for a minimum inflow in ELSS every year for keeping the ELSS account active like there is the case in Provident Pension Fund (PPF) account, National Pension Scheme (NPS), and others.
8) Returns Declared are Post-Expense Ratio Deduction:
- All the returns declared by ELSS Funds are the actual returns which mean returns post deduction of the expenses.
9) Easy to Invest, Track, and Redeem:
- It is very to invest in any ELSS Funds which can be done via any mutual fund account. There are no special regulations for the same.
10) No Compulsion for Redemption from ELSS Fund post-lock-in period:
- Investors should have clarity that even after completion of the 3-years lock-in period, there is no compulsion of redemption from the ELSS fund.
- A person has to manually redeem the investments made in ELSS funds.
11) SIP can also be done in ELSS Funds:
- A Systematic Investment Plan (SIP) can also be done in the ELSS Funds like any other mutual fund, but one needs to keep in mind that every SIP will have a lock-in period of the 3-year, simply every SIP is having separate lock-in period.
What Should Investors Do?
All the above-discussed are some of the points which an investor should consider before making any investment decisions in the ELSS funds. ELSS funds are one of the great tax-saving investment avenues which can help an individual to save tax up to Rs. 1.5 Lakh under section 80 C.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.