One of frequent question I get from readers is What is ELSS? so let me start with the answer up front.
“ELSS means Equity linked saving schemes.These are saving or investment schemes which invest majorily is equity assets. ELSS schemes are essentially a diverisfied mutual funds. Popularity of ELSS schemes stems from the fact that investments made in ELSS are tax deductible under section 80C.”
Here is a Video to help you understand ELSS better
And here is a presentation to explain key features of ELSS
Here are some useful resources on ELSS funds for further reading
- ELSS Wiki
- ELSS Guide
- ELSS Versus RGESS
- ELSS versus PPF versus ULIP
- Best ELSS funds to invest in 2017
Equity linked saving schemes in India are offered by almost every mutual fund company. They are also popularly called Tax saving mutual funds.
Key features of ELSS schemes or ELSS mutual funds.
- They are diversified equity mutual funds and hence the majority of ELSS schemes invest in diversified equities which include large cap, small cap, and mid cap. In general, diversified equity funds invest 70-80% of assets in equities.
- ELSS funds have a lock-in period of 3 years. That means you cannot exit an ELSS funds for 3 years. Lock-in period for ELSS funds is better than any other tax saving investment option
- ELSS funds historically have given highest returns amongst the tax saving investment options available in the market.
- You can invest in ELSS online or offline.
- ELSS provides you great flexibility to invest you can invest at one time(lump sum) or can also invest through SIP( systematic investment plan)
- You can start with as little as Rs 500 per month of investment and can invest as much as you want in ELSS.Tax benefit will only be available on maximum of 1.5 lac though
- ELSS schemes have come in 2 basic flavors. Growth schemes and dividend schemes. In dividend schemes, investors get regular dividends. Please note that dividend generated from ELSS schemes is taxable as per your tax bracket
- ELSS funds do not have any entry or exit load.
- Expense ratio of top ELSS funds varies from 2-3 %
- ELSS funds are a great way to invest for the long term as equity investments. As in long-term, equities outperform other investment options
Frequently Asked Questions on ELSS
- Can I withdraw funds from ELSS schemes before 3 years ?
No, you cannot withdraw funds from ELSS schemes before 3 years from the date of investment. All investments are subject to 3 year lock-in period
2. Should I invest lump sum or SIP in ELSS funds?
In general, SIP helps you to average your cost of acquisition and you do not need to worry about timing the market.So I recommend investing using SIP in the funds. you can also read my post on Lump sum versus SIP Investments
3. Is there any entry or exit loads on ELSS investments?
No there are no entry or exit loads in ELSS investments
4. Should I Invest in ELSS or PPF?
I wrote a detailed post on this please read it here
5. As an NRI can I invest in ELSS schemes
Yes you can invest in ELSS schemes
6. How to chose an ELSS Fund
You can read a detailed post on how to select a mutual fund here