What is ELSS and how to invest in ELSS?

They say that if every citizen were to start adhering to her/his basic responsibility of paying taxes, a country, especially one like India, would truly flourish. A tax-compliant person would also benefit greatly from the tax rules and financial planning policies. So how does a tax-payer benefit from various financial planning policies? Well, all you’ve got to do is empower yourself with a little knowledge.

The most common terms that we hear when it comes to investment and tax-saving schemes are Fixed Deposits and Mutual Funds. But there are other interesting and simple ones we’ve got to introduce to you! Take ELSS. ELSS is another tax-saving scheme called as an Equity Linked Savings Scheme. With this scheme, you can save on taxes and benefit from the Equity Market. That’s why it doubles up as an investment plan! What is ELSS?

The ELSS is a diversified and open-ended equity mutual fund. It helps you to save taxes up to Rs. 1.5 lakh, and at the same time helps you grow your money. It operates legally under Section 80C of the Indian Income Tax Act. The fund can usually be kept for a period of 3 years and is mostly invested in the stock market.

One of the main reasons for its popularity is this dual advantage of good returns and income tax benefits. Another brownie point should also be given as no tax is levied on the long-term gains received from the investment.

An ELSS has the shortest lock-in period (the period you need to stay invested) as compared to the rest of the schemes. Since it is an equity-linked scheme, the earning potential is high. It is also possible to earn gains during the lock-in period. However it should be said that there is no complete assurance of receiving gains as it involves the dynamic instruments that constitute the equity market.

How to invest in ELSS?

So now the question arises, is this for you? Can you or I invest in ELSS? Now it should be said that these funds can be risky. Factors like inflation should also be taken into consideration before investing in an ELSS. A high performing ELSS fund can certainly bring gains. Individuals and HUF (Hindu Undivided Family) can invest in these funds.

The best part is that you can start with a minimum amount of Rs. 500! So even if you’re a part-time working student, you can consider this. There is no upper limit on how much you can put in but it should be noted that tax-saving only applies on a maximum limit of Rs. 1.5 lakh a year.

So there you go - a simple tax-saving scheme. Remember to pay the rest of your taxes though! 😉