Mutual Fund<\/a> . You hand over your money to an asset management company and they will invest it for you, mainly in equities.<\/p>\nThis investment scheme is fast becoming a popular choice as it not only helps create wealth but also doubles as a tax-saving profitable investment option.<\/p>\n
The tax benefits offered by ELSS fall under the section 80C of the I-T Act and offer tax exemptions of up to Rs. 1.5 Lakhs. Now, even if a person falls under the maximum tax bracket of 30%, that person can save a maximum of Rs. 45,000 on tax. That\u2019s a tidy sum.<\/p>\n
The funds invested in by ELSS primarily revolve around equities and related equity products. These schemes come with a lock-in period of three years \u2013 the primary factor that differentiates an ELSS from any other type of Mutual Fund. Investors cannot access their funds during the lock-in period, and this ensures continued savings.<\/p>\n
It sure sounds like any other type of Mutual Fund.<\/h2>\n
Well, as an ELSS is a type of Mutual Fund, they work the same way. Your asset management company will pool your money with that of other investors and invest it across sectors. Hence the name Mutual Fund. You see, a bigger pool of money will attract greater returns, and losses can be spread out too.<\/p>\n
So, how does an ELSS differ from other Mutual Funds? I don\u2019t see any difference.<\/h2>\n
The difference is that ELSS funds invest mainly in equities. Furthermore, they come with a lock-in period of three years. What this means is that you cannot withdraw your funds before three years. Other Mutual Funds don\u2019t come with a lock-in period.<\/p>\n
Hmm\u2026 what benefit do I get from locking my money in an ELSS for three years?<\/h2>\n
Good question! When you invest in an ELSS, you become eligible for\u00a0tax sops under Section 80C of the Income Tax Act\u00a0and you can claim tax deductions. Other Mutual Funds do not offer this benefit.<\/p>\n
A: Should I opt for a lump sum amount or instalments?<\/h2>\n
Since ELSS funds have a lock-in period of three years, it\u2019s advisable to\u00a0invest a lump sum of money. If you invest your money in instalments, each instalment will get locked in for three years. It\u2019s always good to invest in an ELSS when the markets are down. The stock prices will be down and you will reap good returns when stock prices rise with an improving economy.<\/p>\n
However, if you are investing in any other type of Mutual Fund, consider a\u00a0Systematic Investment Plan (SIP)\u00a0or SIP. This means investing a fixed amount at regular intervals. When markets are low, you\u2019ll be able to get a higher number of units and when the markets are high, you\u2019ll get fewer. This will result in rupee-cost averaging and could reduce your investment risk in the long run.<\/p>\n
What is the benefit of an SIP?<\/h2>\n
An SIP is a disciplined and planned approach towards investing in a Mutual Fund. You invest a certain amount of money at regular intervals. This helps you plan your budget ahead of the payment date. With an SIP, you can also keep a track of how much you have invested and what returns you are receiving on your investments.<\/p>\n
How are ELSS Mutual Funds different from a PPF and NSC?<\/h2>\n
ELSS Mutual Funds don\u2019t have a maturity period or maximum investment amount.\u00a0Public Provident Fund (PPF)\u00a0and\u00a0National Savings Certificate\u00a0(NSC) have a fixed maturity period and there is a cap on the money you can invest in a year. PPFs have a lock-in period of seven years and NSC\u2019s have a lock-in period in line with the maturity tenure.<\/p>\n