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What are ELSS Funds and how do they work? | Benefits of ELSS Funds to Investors

What are ELSS Funds and how do they work? | Benefits of ELSS Funds to Investors

Published on 11 March 2022 .Views 26 .Comments 0
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In this article, we will discuss about Equity Linked Saving Schemes (ELSS) funds which fall under the Tax Saving category wherein an individual can take the benefit up to Rs. 1.5 Lakhs under Section 80 (C) under the old Income Tax regime. What is this ELSS Fund and how do these Funds work, let’s discuss this all in this article as we move forward.

What is ELSS Fund?

  • ELSS which acronyms for Equity Linked Saving Schemes is one of the good investment options from a long-term perspective.
  • In ELSS Mutual Funds, the investment is being made into equity where an individual can take dual benefit of tax saving as well as can enjoy the capital appreciation feature of the equity market.
  • There is a 3-year lock-in period in the ELSS Fund. Even if a Systematic Investment Plan (SIP) is made in the ELSS Fund, then the lock-in period will be calculated from the date of SIP done.
  • In ELSS Fund, Long-Term Capital Gain (LTCG) Tax is applicable.
  • One positive thing about ELSS Funds is that it has the lowest lock-in period among all other schemes/investment avenues which provide a benefit under Section 80 (C) of the Income Tax Act.

How do ELSS Funds Work?

  • ELSS Funds exactly functions like the Flexi-cap fund category where the fund manager has the full liberty to allocate among large-cap, mid-cap, and small-cap stocks.
  • Due to the same reason, there are various kinds of ELSS Funds available where different Fund Managers allocated funds among stocks as per their thought process.
  • In terms of performance, Flexi-Cap Funds or ELSS Funds have delivered a similar rate of returns in the past years especially in the calendar year 2021, where the returns of both the funds were around 31%.

Should You Invest in ELSS Funds:

Even if an individual is not having any tax savings thought process or the allowed limit has been exceeded, then also he/she can proceed with ELSS Funds, as there are various good ELSS Funds are available. The only issue an investor can find in this fund is the lock-in period of 3-years. Also, one needs to check the risk-taking capacity of the Fund Manager regarding the allocation of the fund while investing in stocks.

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.

Originally Published On: https://blog.investyadnya.in/what-are-elss-funds-and-how-do-they-work/

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