The Equity-Linked Saving Scheme (ELSS) is a type of mutual fund. It is designed to offer tax benefits to investors under section 80C of the Indian Income Tax Act. Such funds help promote long-term investments while instilling discipline in investors. So what\u2019s the catch? Some would say the lock-in period. But is it really?<\/p>\n\n\n\n
The lock-in period for an ELSS fund is three years. Locking the investment up for this period is mandatory. So you cannot redeem or withdraw the money you invest for three years from the date of investment.<\/p>\n\n\n\n
When you consider tax relief for investors under section 80C, this is one of the lowest lock-ins you\u2019ll find. All other tax-saving instruments available have a much longer lock-in requirement. For instance, the lock-in for the National Savings Certificate (NSC) is 5 years, and Public Provident Fund (PPF) is 15 years.<\/p>\n\n\n\n
Investors can opt for ELSS funds in one of two ways.<\/p>\n\n\n\n
ELSS investors can make a one-time payment if they wish to. With a lump-sum investment, the three-year lock-in period starts from the day the mutual fund company receives the money. That is the day of the purchase.<\/p>\n\n\n\n
Investors can also take the Systematic Investment Plan (SIP) route to invest in ELSS funds. With this option, the investor invests a smaller sum of money periodically for a fixed term. The investment can occur on a weekly, fortnightly, monthly, semi-annual, or annual basis. The investor gets to choose the periodicity.<\/p>\n\n\n\n
However, in this case, the lock-in period will be calculated sequentially\u2014so that\u2019s three years from the date of each SIP installment. In other words, the redemption or withdrawal is staggered like the installments.<\/p>\n\n\n\n
Let\u2019s try to be really clear about how this works. Suppose your first installment worth \u20b940 was made on 2 February 2023. And the second of the same amount was made on 2 March 2023. At the time of the first installment, you may have gotten a better deal\u2014let\u2019s say you were able to buy 60 units. But during the second the cost was higher, so you go only 20 units. The lock-in for the 60 units will end on 2 February 2026. The remaining 20 will mature on 2 March 2026. And, naturally, the amount you receive will vary.<\/p>\n\n\n\n
ELSS funds come with many advantages, as you may be able to see by now. A few of them are discussed below.<\/p>\n\n\n\n
Individual investors can avail of exemptions up to \u20b91,50,000 in any financial year under section 80C of the Indian Income Tax Act. This is the only tax-saving equity-related investment option that has the potential to earn higher returns.<\/p>\n\n\n\n