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What is Equity Linked Saving Scheme (ELSS)?

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Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme (ELSS) is a sub-genre of mutual funds where investments in equity form the major component of the portfolio.  The Scheme owes much of its popularity to the tax advantage that it offers.

Features

  • Investment upto Rs.1,50,000/- are allowed to be deducted from the gross taxable income every year under Section 80C of the Income Tax Act, 1961;
  • The Equity Linked Saving Scheme has a shorter lock-in period of 3 years compared to Public Provident Fund – 15 years and National Savings Certificates – 6 years;
  • The minimum investment is Rs.500/-.
  • There is no ceiling on investment though tax deduction benefit is restricted to Rs.1,50,000/-;

Options for investors

  • Investors may select the growth option and look to benefit from long-term capital appreciation. There is no tax incidence on long term capital gains that flow to the investor;
  • Alternatively, the investor may opt for dividend payout and enjoy income flow during the lock-in period of 3 years. No tax is payable by the investor on the dividend received;
  • The investment may be made either in lump sum or through a Systematic Investment Plan (SIP);

The ELSS investment must be approached by the investor no differently from any other investment in a mutual fund. Risk assessment, track record, investment portfolio, and expense ratio must be diligently analysed.

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Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

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