Let us learn: What is ELSS?The financial year is coming to close. Nowadays we often hear this term: ELSS. We come to know that investment in ELSS helps us to save tax under Section 80C of Income Tax Act. We are asked to invest in ELSS. So, let us learn about ELSS.
Equity-Linked Investment Scheme (ELSS) is basically an equity mutual fund. The entire corpus is invested in equity. However, the main difference of ELSS with the ordinary equity mutual fund is that invested money in ELSS cannot be redeemed before 3 years, whereas there is no such restriction in other mutual funds. So, an investor is required to remain invested for at least three years in ELSS. He/She cannot withdraw money even in case of market downturn before three years. ELSS investment is eligible for tax rebate under Section 80C of the Income Tax Act. Among the tax-saving instruments, ELSS has the least lock-in period (3 years).
The investors must be aware of the fact that ELSS can be of various types. Some ELSSs invest only in bluechip stocks, some invest in large-cap and mid-cap stocks and some ELSSs invest in multi-cap stocks. So, investors must check this aspect and chose ELSS according to his/her risk profile. Furthermore, investment in ELSS should be made in lumpsum. SIP in ELSS is generally not advisable.
Historically speaking, ELSS gives maimum return among all tax-saving instruments but at the same time, it is most risky.