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5 things you need to know about ELSS mutual funds in 2022

A lot of investors are yet to realise that they can enjoy reasonable returns on their investment and reduce their tax outgo at the same time. That’s where equity-linked saving schemes or ELSS step in. An equity-linked saving scheme (ELSS) is an open-ended equity mutual fund that invests primarily in equities and equity-related products. Moreover, they also qualify for tax deductions under Section 80C of the Indian Income Tax Act, 1961. Thanks to the said aspect, they are also referred to as tax saving mutual funds.

Equity-linked savings schemes or ELSS are a subcategory of mutual funds that are eligible for tax deductions according to the provisions of Section 80C of the Indian Income Tax Act, 1961. Through this scheme, you can claim a tax rebate of approximately ₹1,50,000 and save up to ₹46,800 a year in taxes by investing in ELSS mutual funds. The fund allocation in ELSS is mostly made towards equity-linked securities and equity. Therefore, if you have invested in ELSS, you can invest in things like listed shares. Other than listed shares, they may also have some exposure to fixed-income securities as well. But these funds come with a lock-in period of just three years, which is supposedly the shortest among all Section 80C investments.

What are the salient features of equity-linked saving schemes?

Here are some of the salient features of ELSS mutual funds:

  • They have a lock-in period of three years:

Amongst the prominent features of equity-linked saving schemes is that they come with a lock-in period of three years. However, you need to remember this if you want to invest your money in ELSS. If you invest your money in ELSS, you need to wait for three years to get it back as there are no provisions in the plan for premature exits.

  • The income generated may not be impacted by inflation:

ELSS schemes are a tax-saving investment option that comes with the potential to offer inflation-beating returns. Therefore, if you have put money in an ELSS plan and the market is going through inflation, you don’t need to worry that the income generated through the scheme may not be impacted by the current conditions of the market.

  • They can help you with both, wealth accumulation and tax saving:

It is also important to note that ELSS funds come with twin benefits. They are wealth creation and even the advantages of tax deductions. Under the provisions of Section 80C, you could enjoy a deduction of approximately ₹1,50,000 a year if you were to invest in ELSS funds.

  • There are no limits to investments:

Once you have opted to invest in ELSS, you can invest any amount on the plan and there is no upper capping. But it is important to remember that the minimum amount that needs to be invested on ELSS varies across fund houses. So, if you are signing up for ELSS offered by an investment firm, please make sure to check what is the minimum amount of investment for the ELSS offered.

  • Investors can enjoy tax deductions:

Another major characteristic of ELSS is that an investor can enjoy tax deductions under section 80C. Hence, if you were to opt to invest in ELSS, you could enjoy a deduction of approximately ₹1,50,000 a year under the provisions of Section 80C.

Apart from the ones mentioned above, there are numerous reasons why one should invest in ELSS funds. ELSS schemes come with the potential to pay out more returns. As these funds invest in things like equities, they offer better returns. However, it doesn’t guarantee returns.

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

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