By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Investment Simplified
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Cryptocurrency
    • Popular Searches
    • Benefits of Using Blockchain Technology
    • What Is A Cryptocurrency Hardware Wallet?
    • What is Market Capitalization In Crypto?
    • What Is Staking In Crypto?
    • Investor’s Guide to Crypto Trading
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • Investment
    • Mutual Funds
      • Popular Searches
      • Tax Saving SIP
      • What is Arbitrage Fund?
      • What are Gold Mutual Funds?
      • What are Contra Funds?
      • Best SIP Plans to Invest
    • EPF
      • Popular Searches
      • EPFO Member Portal – Login, Registration
      • EPFO Establishment Search
      • Guide to Your EPFO Member Login
      • EPF Interest Rate
      • What Is UAN Activation?
  • Insurance
    • General Insurance
      • Popular Searches
      • Home Loan Insurance Calculator
      • What is Marine Insurance?
      • How Does a Marine Insurance Policy Work?
      • Types of Marine Insurance in India
      • Types of General Insurance in India
    • Car Insurance
      • Popular Searches
      • Commercial Vehicle Insurance Guide
      • What is Own Damage Insurance?
      • Car Insurance with Zero Depreciation
      • Engine Protect in Car Insurance
      • Return to Invoice Cover Meaning
    • Travel Insurance
      • Popular Searches
      • Domestic Travel Insurance
      • How to Buy Travel Insurance Online?
      • What is Overseas Travel Insurance?
      • International Travel Insurance
      • What is Travel Medical Insurance?
    • Pension & Retirement
      • Popular Searches
      • Commutation of Pension Calculator
      • EPF Pension calculator
      • Public Provident Fund
      • What is Individual Retirement Account?
      • Calculating PPF
  • Banking
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Check Number
      • SBI Balance Enquiry
      • Union Bank Balance Check Number
      • BOB Balance Enquiry
      • PNB Balance Check
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care Number
      • Bank of Maharashtra Customer Care
      • PNB Customer Care Number
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS
      • Axis Bank RTGS
      • HDFC RTGS
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in February 2023
      • Bank Holidays in March 2023
      • Bank Holidays in April 2023
      • Bank Holidays in May 2023
      • Bank Holidays in June 2023
  • About Us
  • Contact
Reading: What is ELSS Funds: Its Benefits, Features
Share
Investment Simplified
Search
  • Tax
    • Popular Searches
    • What is Form 16?
    • Trademark Registration Fees
    • TDS Full Form
    • Ad Valorem Tax
    • How to Save Tax?
  • Cryptocurrency
    • Popular Searches
    • Benefits of Using Blockchain Technology
    • What Is A Cryptocurrency Hardware Wallet?
    • What is Market Capitalization In Crypto?
    • What Is Staking In Crypto?
    • Investor’s Guide to Crypto Trading
  • Aadhaar
    • Popular Searches
    • How to Book Aadhaar Card Appointment?
    • E-Aadhaar And It’s Benefits
    • What is a Masked Aadhaar?
    • ESign Aadhaar: A Complete Guide
    • Aadhaar Card Address Change
  • Investment
    • Mutual Funds
      • Popular Searches
      • Tax Saving SIP
      • What is Arbitrage Fund?
      • What are Gold Mutual Funds?
      • What are Contra Funds?
      • Best SIP Plans to Invest
    • EPF
      • Popular Searches
      • EPFO Member Portal – Login, Registration
      • EPFO Establishment Search
      • Guide to Your EPFO Member Login
      • EPF Interest Rate
      • What Is UAN Activation?
  • Insurance
    • General Insurance
      • Popular Searches
      • Home Loan Insurance Calculator
      • What is Marine Insurance?
      • How Does a Marine Insurance Policy Work?
      • Types of Marine Insurance in India
      • Types of General Insurance in India
    • Car Insurance
      • Popular Searches
      • Commercial Vehicle Insurance Guide
      • What is Own Damage Insurance?
      • Car Insurance with Zero Depreciation
      • Engine Protect in Car Insurance
      • Return to Invoice Cover Meaning
    • Travel Insurance
      • Popular Searches
      • Domestic Travel Insurance
      • How to Buy Travel Insurance Online?
      • What is Overseas Travel Insurance?
      • International Travel Insurance
      • What is Travel Medical Insurance?
    • Pension & Retirement
      • Popular Searches
      • Commutation of Pension Calculator
      • EPF Pension calculator
      • Public Provident Fund
      • What is Individual Retirement Account?
      • Calculating PPF
  • Banking
    • Bank Timings
      • Popular Searches
      • Bank of Baroda Timings
      • IDBI Bank Timings
      • Union Bank Timings
      • Karnataka Bank Timings
      • Central Bank of India Timings
      • Canara Bank Timings
    • Mini Statement
      • Popular Searches
      • Axis Bank Mini Statement
      • HDFC Mini Statement
      • Bank of Baroda Mini Statement
      • Union Bank of India Mini Statement
      • SBI Mini Statement
    • Balance Enquiry
      • Popular Searches
      • Canara Bank Balance Check Number
      • SBI Balance Enquiry
      • Union Bank Balance Check Number
      • BOB Balance Enquiry
      • PNB Balance Check
    • NEFT
      • Popular Searches
      • HDFC NEFT
      • SBI NEFT
      • Axis Bank NEFT
      • ICICI Bank NEFT
      • Canara Bank NEFT
    • Net Banking
      • Popular Searches
      • HDFC Bank Net Banking
      • SBI Net Banking
      • ICICI Net Banking
      • Axis Bank Net Banking
      • IOB Net Banking
    • Customer Care
      • Popular Searches
      • Central Bank of India Customer Care Number
      • Bank of Baroda Customer Care Number
      • Bank of Maharashtra Customer Care
      • PNB Customer Care Number
      • IOB Customer Care Number
    • UPI
      • Popular Searches
      • BHIM
      • Google Pay
      • BHIM SBI Pay
      • Union Bank UPI
      • HDFC UPI
    • Debit Card
      • Popular Searches
      • SBI Debit Card
      • HDFC Debit Card
      • PNB Debit Card
      • Axis Bank Debit Card
      • Kotak Debit Card
    • RTGS
      • Popular Searches
      • RTGS Process
      • SBI RTGS
      • ICICI Bank RTGS
      • Axis Bank RTGS
      • HDFC RTGS
    • IMPS
      • Popular Searches
      • IMPS Limit
      • IMPS vs. NEFT
      • IMPS vs. NEFT vs. RTGS
      • MMID
    • Cheque
      • Popular Searches
      • Types of Cheques
      • Blank Cheque
      • Cancelled Cheque
      • Account Payee Cheque
      • Banker’s Cheque
    • Bank Holidays
      • Popular Searches
      • Bank Holidays in February 2023
      • Bank Holidays in March 2023
      • Bank Holidays in April 2023
      • Bank Holidays in May 2023
      • Bank Holidays in June 2023
  • About Us
  • Contact
Investment Simplified > Mutual Funds > What is ELSS Funds: Its Benefits, Features
Mutual Funds

What is ELSS Funds: Its Benefits, Features

Lakshey Bahl
Lakshey Bahl May 9, 2022 9 Min Read
Updated 2022/09/06 at 2:55 PM
Share
SHARE

Wondering what is the best time to start investing money?  

Contents
What is ELSS Funds? Understand the Good and Bad of ELSS: Advantages and Disadvantages Want to Invest in ELSS Mutual Funds? Here are a Few Things to ConsiderTop Mistakes to Avoid When Investing in ELSS Mutual Funds FAQs

Well, the best time to generate wealth through investing is now. But maybe you keep telling yourself that you’ll invest when you make more money, or you’ll just think about it someday. Or, you feel that the market is going up and down at the moment, and you’re looking for a better time to invest. Or perhaps, you don’t consider yourself a finance guru yet to be able to do anything with your money.  

Here’s the truth – putting it off can actually lead to losses. By waiting for the best time to invest, you might be missing out on some potential sweet gains. So, the sooner you put your funds to work, the more beneficial it will be for you in the long run.  

Now that you’ve got a kick to invest your money, choosing the right investment instrument will be the next thing to do. We’ll make it easier for you.  

When it comes to selecting an investment instrument that offers diversification, accessibility and systematic investing, mutual funds are your best bet. And if you are looking for the twin benefit of investment and tax savings, putting your money into equity-linked savings scheme seems just right! 

This guide will take you through what is ELSS funds and why you must invest in them. Read on!  

Key Takeaways

  • ELSS mutual funds are equity funds that help save tax.  
  • ELSS invests a major corpus in equity or equity.  
  • Investing money in ELSS helps add the element of diversification to your portfolio.  
  • Funds invested in equity-linked savings scheme are subject to market risks.  

What is ELSS Funds?

Investors are usually on the lookout for instruments that can help them generate wealth, get regular returns and save tax. While there are several investment instruments in the market, most of them are taxed according to income tax rules.  

This is where an equity-linked saving scheme comes into the picture. 

ELSS mutual funds are equity mutual funds that help you save tax. These funds invest a significant portion of their corpus in equity or equity-related instruments. Another important thing about ELSS funds is that they are called tax saving schemes. This is because they offer tax exemption of up to rupees 1.5 lakhs from your yearly taxable income.  

Understand the Good and Bad of ELSS: Advantages and Disadvantages

Now that you know what is ELSS funds, let’s move ahead to the pros and cons of investing in the same.  

Advantages of ELSS 

Saves Tax  

The primary benefit of an equity-linked saving scheme is tax saving. Investing your money in ELSS qualifies for tax deduction under section 80C of income tax. According to this section, an investment of up to INR 1.5 lakhs can be deducted from your taxable income annually.  

Diversification  

The majority of ELSS funds invest in a diverse group of companies, ranging from small-cap to large-cap. This allows the addition of diversification element to your portfolio.  

Systematic Investment Plan  

While you have the option to make a lumpsum investment in an equity-linked savings scheme, don’t worry if you cannot!  

In case you don’t have funds available, go for a systematic investment plan. It allows you to invest in ELSS funds in small amounts and create wealth.  

Disadvantages of ELSS  

Market Risks  

An equity-linked savings scheme invests primarily in equity and equity-related instruments. For this reason, there are some market risks associated with mutual funds.  

Unlike other tax-saving investment instruments, such as PPF and tax saver fixed deposit, there is no guarantee of returns with ELSS. Don’t be disappointed yet! The high-risk return ratio and the lock-in period even out the market fluctuations and work well for long term investors.  

No Withdrawals  

ELSS funds come with a mandatory lock-in period of three years. This means that if you are in dire need of funds, you cannot withdraw money from ELSS. Looking at the positives, this instils financial discipline.  

Did You Know?

According to the Investment Company Institute, there are more than 6000 stock funds available in the U.S. 

Want to Invest in ELSS Mutual Funds? Here are a Few Things to Consider

Before you invest in an equity-linked savings scheme, there are a few things you must know about.

ELSS Comes With Moderately High Risk  

Equity-linked savings scheme is an equity-oriented scheme and invests 80 per cent into equity and equity-related instruments. This implies that ELSS mutual funds come with moderately high risk as your investment is exposed to market risks. Plus, the funds invested in the equity market are subject to volatility, implying that returns are not guaranteed.  

But if you choose to invest your funds for a longer period, there is a chance of getting good returns.  

ELSS has a Lock-In Period  

When you invest in an equity-linked saving scheme, you cannot withdraw your funds for at least three years. This is because ELSS funds come with a 3 year lock-in period. But don’t forget that ELSS mutual funds are a tax saving instrument with probably the shortest lock-in period.  

After completion of the lock-in period, you can hold your funds as long as they’re performing well. You can also withdraw or sell the units post lock-in period.  

ELSS Funds Should be Held for a Longer Period  

If your ELSS funds are performing well, it is best to stay invested for longer. Historically, ELSS mutual funds perform better when held for a longer time.  

ELSS is an Evergreen Investment  

The right time to invest in ELSS funds is anytime. ELSS can be a great instrument if you want to save taxes and earn extra income. During the tax season, you can invest in ELSS to reduce the taxable income by 1.5 lakhs.  

Top Mistakes to Avoid When Investing in ELSS Mutual Funds

Mutual funds have become a preferred investment avenue for investors. But you must avoid making a few mistakes when putting your money into mutual funds.  

Treating Mutual Funds Like Equity Shares  

Most novice investors are highly allured by the high short-term returns offered by stocks that they have the same perception for mutual funds. Such investors are not aware or have forgotten that mutual funds are a portfolio of stocks built after in-depth research.  

While a stock can be overvalued and undervalued, you cannot apply that analogy to mutual funds. This is because a fund manager selects valued stocks as per the portfolio’s objective. So, avoid buying and selling mutual funds for the purpose of trading.  

Looking at Past Performance  

A mutual fund’s past performance can give us a good notion of how effective the fund manager was at picking the appropriate stocks at the right time. That was, however, in the past. There is no guarantee that the fund’s past performance will be repeated in the future. 

Comparing Funds 

While comparing fund performance, most investors make the mistake of weighing apples to oranges. They only focus on the amount of return a fund has provided rather than whether the funds are in the same category or other aspects of the funds. Make sure to do comparisons with appropriate peers and benchmarks. 

A small-cap fund’s performance cannot be compared to that of a large-cap fund because the two invest in different types of stocks. 

Word to Remember

Equity Market  

An equity market is where companies’ shares are issued and traded, either on exchanges or over-the-counter. 

Conclusion

ELSS is a two-in-one investment vehicle. It helps you save money on taxes and also helps you build significant wealth with that money. 

As a result, you can put these assets towards long-term goals like your child’s education and retirement, where you’ll need to outperform inflation by a large margin. 

FAQs

Are ELSS mutual funds taxable after 3 years? 

Long-Term Capital Gains on ELSS mutual funds are tax-free up to rupees 1 lakh. Plus, the dividends are tax-free in investors’ hands. Even after the three-year lock-in period has ended, you can continue to invest in this scheme. 

Is investing in mutual funds a good idea? 

You can make good returns with ELSS mutual funds, but you can also make low to negative returns. So, don’t invest in an ELSS if your time horizon is less than three years. Make a long-term investment. 

Can you lose money with ELSS mutual funds? 

ELSS funds are a terrific way to invest in the stock market while saving money on taxes. Because ELSS funds are equity funds, they may appear to lose money in the near term, so you shouldn’t choose one only for tax benefits. 


Can I invest in ELSS mutual funds without opening a demat account? 

As an investor, you don’t need a demat account to invest in a mutual fund. 
Mutual funds, including equity-linked savings schemes (ELSS), can be purchased through an AMFI-certified mutual fund advisor or directly through the website of a fund house. 

How can I deposit money in ELSS? 

A person must be KYC compliant in order to invest in an equity-linked saving scheme. The investment can be made by bringing a duly filled physical form and a check to the fund house’s branch office or the registrar’s office. 

Share this Article
Facebook Twitter Whatsapp Whatsapp Email Print
Previous Article what is hra What is HRA and How to Calculate It
Next Article equity mutual fund What is Equity Mutual Fund and Why is it a Preferred Investment Tool?
Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Popular Searches
  • What Is Mutual Fund
  • What Are Contra Funds
  • What Are Money Market Mutual Fund
  • How To Invest In SIP
  • Types Of Mutual Funds
  • SIP Vs Mutual Funds
  • ELSS Tax Saving
  • Flexi Cap Fund
  • What Is SIP
  • What Are Tax Saver Mutual Funds
  • Best Debt Mutual Fund
  • Mid Cap Mutual Funds
  • Best Mutual Funds
  • What Is A Liquid Fund
  • Large Cap Fund
  • Best Sip To Invest
  • Equity Mutual Fund Types
  • What Is Equity Mutual Fund
  • What Is Tax Saver Sip
  • What Is ELSS Fund

Social Media

Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

Recent Post

Union Bank Holidays
Union Bank Holidays List 2023
Banking
Indian Bank Holidays
Indian Bank Holidays List 2023
Banking
Kotak Bank Holiday
Kotak Mahindra Bank Holidays List 2023
Banking
Axis Bank Holiday
Axis Bank Holidays List 2023
Banking

You Might also Like

tds

TDS on Sale of Property

TDS (Tax Deducted at Source) is one of the tax collecting methods…

Read More
Form 3CD

Form 3CD: Definition & Applicability

Form 3CD is a reporting format which is used by an auditor…

Read More
small cap

Best Small Cap Mutual Funds, 2023

Small cap funds are some of the high-risk mutual funds and thus…

Read More
Canara Bank Debit Card

Canara Bank Debit Card

In this age of digitization, with a suitable debit card you can…

Read More
IS logo 250px

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhaar
  • Mutual Funds
  • Banking
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy
Social Media
Facebook
YouTube
Instagram
Twitter
Linkedin

We are here to make your investment journey simple by delivering content on financial topics in plain English.

Categories

  • Tax
  • Cryptocurrency
  • Aadhar
  • Mutual Funds
  • General Insurance
  • Pension & Retirement
  • Car Insurance
  • Travel Insurance

Quick Link

  • About Us
  • Contact
  • Terms & Conditions
  • Privacy Policy

Social Media

Copyright © 2022 Investment Simplified. All rights reserved.

Welcome Back!

Sign in to your account

Lost your password?