Here are few important things to note before investing in an ELSS

As the financial year draws to a close in a few short months the acronym 'ELSS' will become a much talked about investment plan. Here's what you need to know about them.

New Currency notes of Rs 2000 denomination. Image Source: IANS

Key Highlights

ELSS is a type of diversified mutual fund.

Minimum lock-in period for ELSS is three years.

Minimum amount to start an ELSS can be Rs 500.

Disclaimer: This story is for informational purposes only and should not be taken as investment advice.

Finding the right mutual fund portfolio can be much like measuring the right dietary needs to maintain a balanced diet. You need to include the right amount of carbs, protein and liquids to live a healthy life.

Now as the financial year draws to a close in a few short months the acronym 'ELSS' will become a much talked about investment plan. We tell you more about this diversified equity mutual fund.

What is ELSS?
Equity Linked Savings Schemes are a kind of diversified equity mutual fund that gives you different benefits much like a multi-flavoured pizza! The added advantage of this ‘multi-flavoured pizza’ is that ELSS are tax-saving mutual funds that you can use to reduce taxable income by upto Rs 1.5 lakh under Section 80C.

Shortest lock-in period
ELSS has one of the shortest lock-in periods, in that your money will be locked away in the investment for a total of three years. Other savings options available like PPF has a lock-in of 15 years and National Savings Certificate (NSC) has a lock-in of six years.

“You can also stop an ELSS SIP at any point, but the invested amount can be withdrawn only after 3 years,” tax solutions website, ClearTax said in a report.

How risky are ELSS investments?
ELSS invest mostly in stocks and evidently carry higher risks on returns than fixed deposits or PPF accounts. Nevertheless they can prove to be pretty useful.

“ELSS funds don’t guarantee returns because they earn from investments in the equity market.However, the best performing funds have displayed the capability of generating inflation beating returns over the long-term,” ClearTax said.

What is the ELSS investment limit?
You can begin an ELSS investment with a minimum amount of Rs 500. There is no upper limit on how much you can invest in ELSS funds, but tax-saving can be availed on only a maximum of Rs 1.5 lakh a year.

What would my return on investment be like?
As per analysts, ELSS gives investors maximum returns on investments. A report by ET said that return expectation of around 12-15% tax free returns from equity mutual funds can be achieved.

Can everyone invest in ELSS?
Individuals as well as Hindu Undivided Families (HUFs) can invest in ELSS. However most mutual fund companies do not accept investments from NRIs who are US and Canadian citizens. NRIs living in other countries can invest in ELSS funds, ClearTax explained.

When and how can I start investing?
“You can invest in ELSS through the fund company’s website. Investments can be made in lump sum, but the recommended way is through Systematic Investment Plans (SIP) that allow you to average your investment and save you from catching a market peak. Do remember that each SIP is considered to be a fresh investment and every individual SIP carries a lock-in of 3 years,” ClearTax said.

Also Read: How much to invest to make ELSS earn you Rs 1 crore in 11 years?