Equity Linked Savings Schemes are typically referred to as ELSS Mutual Funds. They’re open ended mutual funds having a secure duration of 3 years. The secure period is perfect for availing tax benefits under Section 80C of Tax Act 1961. Although, there’s no-limit for investments in ELSS Mutual Funds, maximum tax exemption can be obtained to have an investment as much as 1,00,000 rupees.
ELSS Mutual Funds possess the shortest secure duration of three years in contrast to other similar tax saving investments. For instance, bank fixed deposits possess a secure duration of five years to avail tax exemption. These funds invest greater than 65% of funds in equity and related instruments and therefore are qualified for Lengthy Term Capital Gains (LTCG) Tax exemption. Furthermore, all of the dividends compensated through the plan are tax-free at the disposal of the investor.
Investments during these funds can be achieved either like a one time payment or through systematic investment plan. You should invest through SIP that has rupee cost averaging benefit. Many people hurry to purchase these tax saving funds within the finish of March. This last moment investment might not be optimal for investors just like systematic investment planning. Minimum investment is 500 while in other funds it’s 5000 rupees. Both dividend and growth choices are available. Pick the option according to requirement and when opted an option, it’s not easy to change it out during secure period.
Although these funds offer shorter secure period, multiple tax benefits, they aren’t appropriate to any or all investors. Investments in equities and related products have high market risk. They are susceptible to high market volatility. There might be lack of capital too while purchasing equity linked products. Before purchasing such schemes you have to check whether or not they are appropriate for his or her risk profile.
Although, equities are volatile and dangerous in short time, they offer greater returns. Being an asset class equities provide best inflation adjusted returns in lengthy term.
It is a fact that past performance associated with a mutual fund might not be repeated later on. But staring at the performance from the fund over for a longer time can provide more foreseeable future performance from the fund.