Read in: 2mins, Published On , 19 Dec 2016 By ET Wealth
Equity Linked Savings Schemes (ELSS) are a special category of equity mutual fund. Investments in these funds are allowed by the government for tax saving purpose under section 80C of the Income Tax Act. To continue to enjoy this special status these schemes have to invest at least 65% of the corpus in stocks. To claim tax benefits investors in ELSS need to stay invested for at least three years. Financial planners say that the motivation to invest in ELSS should be to grow wealth while tax saving should come after that.
THINGS YOU SHOULD KNOW ABOUT ELSS
You can invest up to Rs 1.50 lakh per year in ELSS to save on taxes
ELSS show less volatility than most other equity funds
You can opt for monthly SIP to lessen the burden of onetime investing
The three-year lock-in for ELSS investments is the lowest among tax saving instruments
Being a mutual fund, it enjoys advantages like lower cost of investing, lower risks etc.
Since most investors remain invested for long, the fund manager also gets some extra cushion about his long term views related to his portfolio
Since not many large investors invest in ELSS, the chance of a sudden and large exit, unlike in some other type of schemes, is less which also gives it some extra stability
ELSS do not guarantee returns. However, historical data show that over the long run, returns from these funds are usually better than most of the other tax saving instrumentss
WHERE DO ELSS STAND COMPARED TO OTHER TAX SAVING PRODUCTS IN TERMS OF RETURNS?
ELSS More than 12% average annual return over the long run
INSURANCE PLANS Maximum 5% average annual return over the long run
PPF 8%-8.5% annual returns; Chances of even lower returns
PENSION PLANS BY INSURANCE COS Around 10% in equity-linked ones, less than 7% in debt-linked ones
BANK FDS Market determined, usually less than 10% yearly return
NSC Govt determined, usually less than 10% yearly return
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