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Equity Linked Savings Scheme Guide for Beginners | An ELSS Guide for Starters - ABSLMF Blog

A Beginners Guide to Equity Linked Saving Scheme – ELSS

Mar 08, 2018
4 mins | Views 12759

We bargain for every single rupee in the bazaar and yet, when it comes to taxes, we practically give it away without thinking of ways to legally save it.

It’s not even that difficult. Simply you may invest in an Equity Linked Savings Scheme (ELSS).

An ELSS is a Mutual Fund scheme created for tax-saving along with seeking potential returns. As the name suggests, this scheme invests most of its money in equity and equity related instruments. Whatever you invest—up to Rs 1.5 lakh—in an ELSS scheme is deducted from your total taxable income. This, then, helps you save tax.

What makes ELSS so good?

Well, ELSS is not just an option for tax-saving. It also helps you create wealth.

Stocks are known for their fluctuation, but that does not just mean a possible fall in value, but also an increase in value! This gives stocks more potential to deliver probable returns. And since ELSS invests in stocks, they have a potential to deliver returns too.  

But it doesn’t stop there. An ELSS Fund also offers other benefits.

  • Smaller lock-in period

    An ELSS funds has a lock-in period of only three years. You can choose to hold on to the scheme or sell it after three years. In contrast, you would not be able to withdraw your money from a Public Provident Fund before 15 years. Most other instruments have a lock-in period of 5 years. This means your money is more easily available to you with an ELSS.

  • Automatic diversification

    ELSS, like any other equity fund, invests in various different assets. This is called diversification which helps reduce risks because when one asset falls in value, the other may rise or remain unaffected. This reduces the risk of loss.

  • Less volatile than a regular Equity Fund

    Did you know that your fund’s Net Asset Value (NAV) or unit price also depends on the heavy redemptions by other investors of the same fund? However, as investors can’t redeem their ELSS funds units before three years, ELSS schemes tend to be less volatile than a regular equity fund. This reduces the fluctuation of the fund’s value, lowering its risk.

  • Automate your investments

One of the biggest benefits you get by investing in an ELSS Fund is that you could invest via Systematic Investment Plan (SIP). This helps you spread out the Rs 1.5 lakh into small monthly amounts. And at a fixed date, the money gets debited from your bank account automatically. This way, you can invest Rs 12,500 every month, as opposed to Rs 1.5 lakh at a time, which can seem too big an amount. Plus, SIP helps you average your cost of investment too since you invest across different market conditions. Click here to read more about SIPs.

So, what are you waiting for? Invest in an ELSS fund with an aim to save tax and create wealth over the long term.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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