You know what happens when you appear for an exam without studying. Don’t make the same mistake while investing your money. Investor awareness or knowing your investments is key for ensuring favourable results.
Are you planning to save tax through Equity Linked Saving Schemes (ELSS)? Here are some things you must know.
- What are ELSS mutual funds?
If you are opting for ELSS, you already know that it is an open-ended mutual fund scheme that invests in equities and equity-related instruments. You know it helps you reduce your tax liabilities. But did you know, it also helps you grow wealth? All thanks to the return-generating potential of equities.
- When can you redeem your ELSS investments?
ELSS has a lock-in period of three years. This means you cannot withdraw your money before the said tenure ends. However, ELSS has the shortest lock-in period as compared to other similar tax-saving investments such as 5-year Fixed Deposits (five years), National Savings Certificate (five years), Public Provident Fund (15 years), etc.
- Are partial withdrawals from ELSS possible?
The good news is no! Why good? We’ll explain. You will stay invested in the fund for at least three years. With equities, the longer you stay invested, the more wealth you may build. How much you can create also depends on how much you invest.
- What is the minimum and maximum investment amount for ELSS?
Again, the good news is that there is no upper limit for investing in ELSS or any other mutual fund type. You can invest as much as you want and let your money compound and grow. The minimum investment amount for ELSS varies across fund houses. Usually, it is Rs 500.
- How risky it is to invest money in ELSS? Are such funds subject to market fluctuations?
When an airplane takes off, you can hear a lot of noise. However, it gets calmer with time. The same goes for ELSS or any other equity investment. They will be volatile in the short run and get affected by market changes. However, such investments tend to be rewarding in the long run. So, the key here is to stay calm and have a long term investment perspective.
- What are the average returns that ELSS offer?
The average returns offered by ELSS over the last 10 years is about 15%*. You can expect between 12-15% returns on average when youinvest in ELSS. This is much higher than other 80C tax-saving investments such as 5-year Fixed Deposits (5-8%), National Savings Certificate (6.8%**), Public Provident Fund (7.1%**), etc.
*Source: Economic Times **Current rates
- How is ELSS taxed?
Taxes hurt but not when you have deductions and exemptions.Section 80C of the Income Tax Act, 1961 allows you to claim a tax deduction on ELSS investments up to Rs 1.5 lakh annually. This means you can save up to Rs 46,800 in taxes every year. Also, if your gains on redemption do not exceed Rs 1 lakh in a year, you can enjoy tax-free mutual fund returns. Only gains more than the said limit will attract a 10% long-term capital gains tax.
- What are the modes of investment available for ELSS?
Though you can invest offline, investing online is convenient. In any case, you have two options. You can either invest at once or you can spread your investment throughout the year. The latter is possible through aSystematic Investment Plan (SIP). It helps you invest smaller amounts at regular intervals. Sounds convenient?
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
