Equity Linked Savings Schemes (ELSS)
Equity Linked Savings Schemes (ELSS) is an ideal way to save on tax as well as enjoy benefits of staying invested in the equity markets. Though there is a plethora of tax-saving instruments available at the disposal of the investors, none of them is as attractive as the ELSS.
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ELSS was introduced to promote investments in equity markets by giving tax concessions to the investors.
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ELSS also comes with a lock in period of three years and operates just like any normal equity diversified schemes, as they need to invest 80% or more of their corpus in equity and equity related instruments.
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Earlier investments upto Rs. 10,000 were only allowed for tax rebate under section 88. However, it has been changed in the last budget and now investors can invest the entire amount of Rs. 100,000 allowed under section the new section - 80C in ELSS.
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ELSS schemes provide excellent investment opportunity when compared with other instruments as they provide decent scope of capital appreciation with added advantage of tax-free dividends.
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The minimum investment amount in most of these schemes Rs. 500, which makes it very affordable even for a retail investor to invest from just the point of investment.
Instruments like Infrastructure Bonds throng the market when people need them most i.e., at the time of the close of the financial year. Also finding place in the list of tax saving instruments are National Savings Certificates (NSC), Public Provident Fund (PPF), LIC Policies among others. The investments in PPF and NSC are guaranteed by the Government of India and thus offer no risk to the investor. However, the lock-in period is relatively longer. Infrastructure bonds are locked in for 3 years but offer very low rate of return.
Though investments in mutual funds do not provide an assured return but when reviewed over a long-term horizon, they tend to give superior returns. As investments in ELSS schemes are locked in for a period of 3 years from the date of investment, it provides the fund manager to gain the maximum advantage from investments in the stock markets. The fund manager has the liberty to build the portfolio with a long-term approach without worrying for redemption pressures.
Systematic Investment Plan Under Equity Linked Saving Schemes:
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Though SIP, an investor can invest a small amount and benefit from rupee cost averaging. As the market price of the investment is dynamic, more units are bought when prices are low and fewer units are bought when prices are high. SIPs make market timing irrelevant also help invest a fixed amount every month.
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There is no entry load while investing into the fund.
How can one invest through SIP?
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Identify the scheme to invest.
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Give standing instruction/post-dated cheques for the amount one wants to invest (monthly/quarterly).
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MF Units will be allotted based on the schemes selling price on the day of the SIP transaction.
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SIP under ELSS should be for a minimum of Rs. 500 or in multiples thereof.
With inputs from HDFC Bank investment news letter
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