Equity Linked Saving Scheme, as the name suggests is a type of mutual fund that primarily invests in equity/Stock market. It is the only mutual fund investment type that is eligible for tax benefits under Section 80C of Income Tax Act.
Lock-In period: 3 years
Average Interest rate in 2021: 16-19 %
Is ELSS taxable after 3 years ? - Long term Capital Gains upto 1 lakh are exempted from tax. Dividend paid is tax free for investors.
Is it better than other investment opportunities under 80C ?
Advantages
Less lockin period of 3 years, hence funds can be used.
Higher Interest rate
Easy to apply and invest.
Changes as per market. (Not a con)
Who should invest ? Common Assumptions
Someone who understands the market and analyse the movement of funds.
Someone who has time to track funds on a daily basis.
Someone who is ready to take a risk.
Do you need to withdraw funds after 3 years lockin ?
You have 2 options: Withdraw funds to your savings account or switch the ELSS fund into a regular mutual fund that might fetch you higher interest rates.
Reality
There are platforms who help you understand the trends and take a calculative decision.
3 years lockin period is a short period when it comes to market sentiments overturning.
Rates are higher than any other investment type defined under 80C.
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