Equity Linked Saving Schemes (ELSS) gives you tax benefits apart from capital appreciation. Though it locks your fund for three years, it gives you tax relief under section 80C. Let's look into 5 things that we must know about ELSS before investing in such schemes.
Threshold limit is as less as Rs. 500
You can start investing in ELSS with as less as Rs 500, unlike equity funds where the minimum investment limit is Rs. 5000. So, if you are new to investing then you can begin with investing in ELSS with just Rs 500. Unlike PPF where you have to deposit a minimum Rs 500 every year, you can make only one time investment in ELSS
Lock in Period is 3 years
The lock in period for ELSS is 3 years. It gives an opportunity to the fund managers to make long term decisions as the investors cannot withdraw the money before 3 years. So, if you invest in ELSS on August 5, 2014, you can withdraw it only in August 5, 2017.
Tax benefits available under Section 80C
If you invest in ELSS then you will get tax benefit under section 80C. Investments are not withdrawn and therefore capital gains tax is also not applicable to ELSS funds. Even if you withdraw, you don't have to pay any tax on long term capital gains from equity mutual funds.
ELSS funds are risk associated
ELSS are equity linked funds and therefore risky funds. Moreover, you have to stay invested for 3 years. So if you have high risk appetite then add ELSS funds to your portfolio. In order to choose the right fund you have to track the past track record as well as consider NAV of the funds.
Choose among - growth, dividend and reinvestment types
You have to choose among the three types - growth, dividend and reinvestment. In the growth option your fund will keep on growing till maturity. In dividend ELSS fund, the investors get some amount whenever the NAV increases. If the fund is of reinvestment type, the dividend payout is reinvested to buy more units of the fund.