ELSS in Equity Mutual Funds

Equity funds are those mutual funds which invest their assets in equity and equity-related securities of the companies. Equity mutual funds are best known for their offering of capital growth & appreciation over the long-term. These funds are best suitable for investors who have a moderate to high-risk tolerance and want to generate high returns over the long term. The investments in equity securities are made on the basis of the investment objective of the scheme. There are many sub-categories of Equity funds and one of the popular equity funds is ELSS Funds (Equity Linked Saving Scheme).

What are ELSS Funds?

ELSS (Equity Linked Saving Scheme) or tax saver funds are those equity funds which invest their assets in a diversified portfolio of equity securities of the companies. These funds can invest in every market capitalization of companies based on the investment objective of the scheme. The major difference between ELSS and other equity funds is that they are considered as tax-saving investments under Section 80C of the Income Tax Act,1961. Investors can claim a tax deduction of up to ₹1.5 Lakh in a financial year.

Also Read: Best Tax Saving Options Under Section 80C

ELSS Funds- Features

ELSS funds can invest in equity securities of the listed companies based on the investment objective of the fund.
These funds have a diversified portfolio as they can allocate their assets in companies with different market capitalization.
The very attractive feature of these funds is that they are considered as tax-saving instruments under Section 80C of the Income Tax Act.
These funds give a tax deduction of up to ₹1.5 Lakh per financial year.
ELSS funds have a lock-in period of 3 years.
Along with the tax deduction, these funds have the potential to generate good returns over long periods.
These are ideal for investors who want to generate good returns along with getting the advantage of tax deduction.
Gains on these funds are taxable as per the applicable LTCG(Long term Capital Gains) tax rate under the Income Tax Act.

Also Read: Best ELSS Funds to Invest in India

Features & Benefits of ELSS Funds.

1. Tax Benefits:

ELSS funds are considered as tax-saving investments under Section 80C of the Income Tax Act, 1961. These funds can offer tax deductions of up to ₹1.5 Lakh per financial year.

2. Lowest Lock-in Period:

ELSS funds have a minimum lock-in period of 3 years. The investments cannot be redeemed before the 3 year period in any case. The units can only be redeemed or withdrawn after the completion of 3 years.

3. High Potential Returns

As these funds invest in highly rewarding equity securities, they have the potential to generate the highest returns among all the tax-saving investment options.

4. Diversified Portfolio

ELSS funds build a diversified multi-cap portfolio by investing in companies across market capitalizations & different sectors. The diversification in the portfolio helps to generate better risk-adjusted returns with lower volatility.

5. Tax-efficient Returns

The returns from the ELSS funds are subject to the capital gain tax under the Income Tax Act. The gains on ELSS funds are treated as LTCG (Long-Term Capital Gains) which is taxed at the rate of 10%. The LTCG tax is only applicable on gains exceeding ₹1 Lakh in a financial year. So, these funds are able to offer better tax-efficient returns than other tax saving schemes.

6. Mode of Investment

Investments in ELSS funds can be made by a lump sum or installments through a SIP mode of investment. This gives high flexibility to investors for investing their money as per their requirements.

7. Risks

ELSS Funds have risks associated with them as these funds invest in equity securities which are relatively risky or volatile in nature over the short run. However, these funds can offer good returns over the long term along with lower risks. These are best suitable for investors with moderate to high-risk tolerance who want to generate high returns along with tax-saving.

Who should invest in ELSS Funds?

ELSS funds are best suitable for investors who are high taxpayers, as these funds help in tax saving.
Investors looking to save taxes by investing in tax-saving instruments can consider investments in ELSS funds.
Investors who want to earn higher returns on their tax-saving investments can opt for ELSS funds. These funds have the potential to offer the highest returns among all tax-saving investments.
Investors who do not want to lock-in their tax-saving investment for long can consider ELSS funds which have the lowest lock-in of 3 years.
These funds are good for investors who want to generate long-term capital growth from their investments.

How to Invest in ELSS Mutual Funds via ZFunds?

There are very easy and simple steps to start investing in ELSS funds. Follow the below-mentioned steps to start investing:

Create your free account with ZFunds. If you already have an account with ZFunds, you can simply log in to it.
To create an account, you will be required to upload your identification documents which can include an Aadhar card, pan card, Voter ID card, driving license, passport, or any other document which is issued by the central or state government.
You will also be required to upload your address proof.
After that, you just need to select the best fund which suits you as per your investment horizon and risk.
And, then at last you just need to choose whether you want to do lump sum investment or start a sip.

After the successful investment, the units will be allotted and investment will be reflected in 2-3 working days in your ZFunds account.

Frequently Asked Questions (FAQs)

1. What are ELSS funds?
ELSS or Tax saver funds are those equity mutual funds which invest in equity securities of the companies to generate returns for investors. Along with that, they offer tax benefits under section 80C of the Income Tax Act,1961.

2. Where does the ELSS Fund invest?
ELSS funds invest in the equity instruments of the companies across market capitalization. These funds generally have a multi-cap portfolio which helps to get diversification benefits.

3. What are the tax benefits in ELSS funds?
ELSS funds are considered as tax-saving instruments and therefore investments in these funds are eligible for claiming tax deductions of up to ₹1.5 Lakh per financial year under Section 80C of the Income Tax Act, 1961.

4. What is the lock-in period of ELSS funds?
These funds come with a mandatory lock-in period. An investor cannot redeem their investment before the completion of the lock-in period i.e. 3 years.

5. What is the minimum amount of investment in ELSS funds?
The minimum amount of investment in ELSS funds may vary from scheme to scheme. Generally, most funds have an investment requirement of ₹500.

6. How to Invest in ELSS funds?
Investments in ELSS funds can be done via lumpsum or SIP mode of investment. Investing in mutual funds is simple & easy via the ZFunds app. Follow the above-mentioned steps to start your investments.

7. Do the gains from ELSS funds are taxed?
Yes, the returns on ELSS funds is taxed on the applicable LTCG (Long Term Capital Gains) while selling the units. The LTCG Tax of 10% is applicable on the gains exceeding Rs.1 lakh in a financial year under the Income Tax Act, 1961.

8. Can I make premature withdrawals from ELSS funds?
No, the ELSS funds do not allow any withdrawals before the completion of a mandatory lock-in period of 3 years. Post-lock-in period, investments can be withdrawn at any time as per the requirements of investors.

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