Available ELSS Options and ELSS Plans for investors

(Last Updated On: April 2, 2017)

Equity Link Savings Scheme is a kind of equity mutual fund that qualifies for tax exemption under section 80C of Income Tax. This post discusses various ELSS options that investors have for investing.

  • ELSS has the lock-in period of 3 years which is lowest among other options available like PPF or tax saving fixed deposit or national saving certificate.
  • The returns in ELSS is comparatively higher as compared to other tax saving options. It is considered as one of the preferred tax-saving avenues.
  • One can open ELSS account with as low as Rs.100 and yearly investment can be as low as Rs.500 to Rs.1.5 Lakh.
  • Unlike bank interest which is taxed every year at a flat rate of 10%, in ELSS taxation comes into the picture as and when you sell units of ELSS fund. If investors hold an investment for more than 36 months and it generates gain out of it then it will be considered as Long-term capital gain and if units are sold within 36 months and it generate gain then it will be considered as short-term capital gain. In case of long-term capital gain, due to the equity nature of ELSS, the returns become automatically tax free.
  • It is also to be noted that since it is equity-linked fund and associated with stock market, it does carry risk. Higher the risk, greater the returns. Though the risk is negligible as the investment made is diversified among different sectors, but risk persists which cannot be denied.
See also  ELSS vs RGESS: A Comprehensive Guide

Plans available

  • Growth option
  • Dividend option

Just like all other equity funds, ELSS also has the option of growth and dividend.

What investor will get in both options:

In growth options, after the expiry of lock-in period which is 3 years, the investor will get lump sum amount. While in dividend option, the investor will get a regular dividend as and when declared by the fund house and even during lock-in period also he/she gets a regular dividend.

Distribution of profit:

As and when profits generated by ELSS fund house are invested back into the fund under growth option while in case of dividend option it is at the discretion of the fund manager to declare the dividend or not and that too when profits are generated. The dividend is purely based on the NAV of units held by the investor. So when the dividend is declared, NAV of fund tend to reduce.

It is to be noted that if an investor chooses dividend reinvestment option, then the lock-in period of three years start from the date of such reinvestment.

Taxation matters a lot:

Dividend and growth options can be chosen very carefully by the investor after considering tax liability and requirement of the fund in near future. By option for dividend option, he/she not only gets part of profit but this also reduced your NAV price. By opting growth option, one can appreciate its capital but also he cannot get part of profit until redemption.

In a nutshell, ELSS and all other mutual fund are meant for long term horizon and to get good returns, better to stay invested for the long term and allow the money to grow.


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