Equity Linked Savings Scheme (ELSS): A Smart Investment Route To Save Tax And Build Wealth

With an increasing awareness of managing finances, Indian investors are now looking for ways to grow wealth and reduce taxes. One of the various instruments under Section 80C of the Income Tax Act, which Indian investors can take advantage of, is the Equity Linked Saving Scheme (ELSS) funds, as it provides them with the opportunity to enjoy tax deductions while eventually appreciating their long-term capital. ELSS mutual funds predominantly invest in equities, making them suitable for invest in investors willing to take risks to earn higher returns on their equity exposure.

Read the article to learn more about the savings scheme, ranging from its meaning and ELSS scheme returns to eligibility criteria, application process, and Equity Linked Savings Scheme interest rate.

What Is The ELSS Scheme?

ELSS is the best equity-linked savings scheme, which is a mutual funds that invest at least 80% in equity and equity-related instruments. ELSS have a 3-year lock-in period, which is the least among all tax-saving investment options. Investors can either invest via a lump sum or by SIP (Systematic Investment Plan) in ELSS. ELSS funds are market-linked, meaning they carry risk to an extent, but they also allow potentially higher returns in the long run.

Top Features of ELSS

Before you invest, it's important to recognise the distinct attributes of ELSS schemes from other mutual fund schemes. The attributes and tax benefits are detailed in the following points.

• Tax Deduction: Investment amount up to ₹1.5 lakh under Section 80C.

• 3-Year Lock-in: ELSS cannot be redeemed before 3 years from the date of investment.

• Equity-Oriented: ELSS must have a minimum 80% allocation in equity, which allows potential capital appreciation.

• SIP & Lumpsum Options: Options allow investors to invest systematically in a fund.

• Capital Gains Tax: LTCG (Long Term Capital Gain) over ₹1 lakh is taxed at 10%.

Who Should Invest In ELSS?

Before you invest, make sure that Equity Linked Savings Schemes (ELSS) suit your financial plan, risk profile, and taxation needs. Below is a list of investor profiles who can use ELSS for wealth creation and tax savings.

• First-time investors - Wanting exposure to the market with tax breaks for long-term returns.

• Young Professional - Ready to build their wealth at a young age.

• Salaried individuals - Wanting deduction under Section 80C.

• Moderate to high-risk investors - Newer investors looking for a long-term return.

Also Read: Education Loan Under Section 80E Of the Income Tax Act

How To Invest In The ELSS Scheme?

You will find that getting started with your ELSS investment is easier than expected. To get started on the right foot, follow the steps below.

Step 1: Select a trusted AMC or mutual fund platform.

Step 2: Choose your preferred ELSS scheme (assessing past performance, fund manager, etc.).

Step 3: Complete your registration using your PAN, KYC documents, and bank account.

Step 4: Decide whether you want to invest in a lump, or go with SIP.

Step 5: Get used to ethical portfolio tracking, but only redeem or exit after 3 years.

Conclusion

An investment in the Equity-Linked Savings Scheme (ELSS) is an interesting investment that benefits an investor with tax savings (limited to a certain amount) while providing equity-linked returns. It is a great beginner-level investment for a long-term view to create wealth. With the short lock-in and the compounding potential, ELSS has an advantage among all Section 80C investments. Before investing, check your investment goals and risk tolerance before proceeding.

Get the latest updates on government schemes and policies with Jaagruk Bharat. Join India's biggest Jaagruk Bharat community. Share your thoughts, questions, and favourite topics with us.