ELSS Full Form

ELSS full form is Equity Linked Savings Scheme and is regarded as the best tax saving investment option. This category of mutual fund scheme generally invests in equity-related products. It often appears in the priority list of individuals who are in search of an investment option whereby high interest can be earned without paying hefty taxes. 

What is the Full Form of ELSS?

The full form of ELSS is Equity Linked Savings Scheme, and as the name suggests, it majorly invests in equities. Under Section 80C of the Income Tax Act 1960, this mutual fund category has been exempted from paying tax on up to Rs 150,000 in savings. This funding scheme has a mandatory tenure of three years. Individuals investing in this scheme can also get a great scope of earning huge capital after a tenure of three years. 

Those saving over 1 lakh have to bear a tax deduction of just 10%, which is pretty feasible compared to other funding schemes. ELSS is perhaps the most diversified fund that invests in a wide array of stocks as well as equities to help beneficiaries gain maximum profit. 

How Does an ELSS Fund Work?

As already mentioned above, ELSS offers diversification in investment portfolios; hence, it is highly preferred by salaried individuals. In this type of fund, generally, stocks across various market capitalizations are taken into consideration. This tax-saving mutual fund comprises 65% of equity-linked securities, with a mandatory lock-in period of three years. 

An individual can invest up to Rs 1.5 lakh in stocks or securities and expect a deduction in taxes. In case you are a first-time investor and have no idea about investing in mutual funds, then ELSS will be an easier option for you. Similar to any other mutual fund, you can invest through a SIP or lump sum. Well, SIP helps in regulating and missing risks of capital investment.

Highlights on ELSS

Studying the Features of ELSS

ELSS, the full form of which is Equity Linked Savings Scheme, often tops the wish list of investors, and to discover the reason, it's vital to go through its salient features. 

• ELSS funding schemes have a fixed tenure of 3 years, and beneficiaries are not allowed to withdraw it before the completion of the lock-in period.
• There's no maximum limit on invested amounts in this mutual fund scheme; however, the minimum limit may vary according to funding institutions.
• It is a tax saving scheme whereby an investor can save their income from hefty tax rates. In fact, ELSS can offer you a return without being affected by inflationary market conditions.
• Investing in ELSS helps in saving taxes and opens better avenues for wealth creation at the same time.
• Diversification in Equity linked Savings Schemes helps in eliminating incidences of risky capital investments.

Important Determinants for Investing in ELS

Irrespective of the type of funding scheme you choose, risk is inevitable. Although ELSS is a pretty safer option, before staking your valuable savings, take care of the following factors.

Tenure of ELSS

If you are a first-time investor, ensure you consider the tenure or lock-in period of ELSS funds. As per rules, an individual is not allowed to withdraw their invested capital before 3 years. Most investors opt for PPF or NSC to ELSS scheme because it enables them to reap maximum benefit from this type of funding scheme.

Type of Investment

This is perhaps a major factor to be considered before you choose the Equity Linked Savings Scheme(ELSS full form). In ELSS, you will get two options that include lump sum or SIP. To avoid any risky circumstances like inflation SIP seems to be a feasible option. Generally, lump sums incur losses in bearish markets.

Returns

ELSS funds are meant to offer higher returns when you have long-term investment goals. As these tax-saving mutual fund schemes rely more on the performance of securities; hence, you need to have a longer investment period of 5 years to gain high returns.

Implications & Risks of Investing in ELSS Fund

ELSS, the full form of which is Equity Linked Savings Scheme, can enable you to save income tax up to 10%. Well, investing in any funding scheme requires one to weigh out the pros and cons to make the right decision. So, before you plan to invest in this scheme, discover its benefits and risks below.

Benefits:

• One of the first and foremost characteristics of ELSS is it's being an equity-based mutual fund which makes it a diverse investment scheme. Equity mutual funds help in creating wealth over a longer period. 
• Taxation policy in ELSS funds allows investors to get better capital gain by paying lower taxes compared to any other types of mutual fund schemes. Under section 80C, you can claim a tax deduction of up to Rs 1.5 Lakhs. 
• Investment in Equity Linked Savings Scheme through a SIP is perhaps the best way to increase your invested sum. One can invest a SIP of just Rs 500, and with an increase in income, a SIP top-up can be availed. 

Risks:

• As ELSS is majorly dependent on equity; therefore, there is a higher chance of risk in your invested money. This type of fund remains susceptible to the volatiles in the market.
• ELSS has a fixed lock-in period of 3 years, and investors are not allowed to withdraw the sum before completion of the tenure.
• Investors cannot expect a fixed return because this funding scheme generally invests in the stock markets that remain affected by bearish markets.

Besides its risks, ELSS, helps salaried employees or first-time investors in saving hefty taxes on income. To reduce risk, it is better to opt for SIPs and withdraw the amount at least after 5 years, it will definitely create wealth.