Finance Guru Speaks: An Equity linked saving scheme (ELSS) is similar to tax saving instruments like National Savings Certificate and Public Provident Fund. However, the returns are directly linked to equity.
An ELSS has a lock-in period of 3 years.
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| Equity linked saving scheme (ELSS) |
It is covered under Section 80C of the Income Tax Act and allows investment of up to Rs. 1.5 lakh. The amount invested can be deducted from total income, reducing total taxable income.
For Example: If your total annual income is Rs. 5 lakh and you invest Rs. 1 lakh in ELSS then your taxable income will become Rs. 4 lakh.
SIP (Systematic Investment Plan) & ELSS:
- Invest in small monthly amounts to reduce the burden.
- Take advantage of fluctuations in stock markets to average the unit cost.
- Get more units when the markets are bearish & less when the markets are bullish.
- No entry load & other charges.
Benefits:
- Shorter lock-in period (3 yrs) than NSC & PPF.
- The potential of earning higher returns.
- A dividend payout is available during the lock-in period.
- Investing through a Systematic Investment Plan (SIP) averages out your investments over a period of time.
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