#14 - Equity Linked Saving Scheme Explained | ELSS Funds To Save Income Tax | FinCalC TV [VIDEO]

Overview 
An ELSS is a diversified equity mutual fund which has a majority of the corpus invested in equities. 
Since it is an equity fund, returns from an ELSS fund reflect returns from the equity markets. 
This type of mutual fund has a lock in period of 3 years from the date of investment. This means if you start a Systematic Investment Plan in an ELSS, then each of your investments will be locked in for 3 years from the respective investment date.

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Similar to other equity funds, ELSS funds have both dividend and growth options. 
Investors get a lump sum on the expiry of 3 years in growth schemes. 
On the other hand, in a dividend scheme, investors get a regular dividend income, whenever dividend is declared by the fund, even during the lock-in period.
ELSS provides maximum of Rs. 1.5 Lakhs to be claimed in a Financial Year for Tax Deduction under Section 80C.

What you should look in a ELSS fund:
Remember to do thorough research when you invest in an ELSS fund.
You must look at the long term performance of the fund before putting your money in it.
Also remember to look at the fund details like the fund manager’s investment approach, portfolio of the fund, the expense ratio of the fund and how volatile the fund has been in the past.

Let us now see the Advantages of ELSS over other Tax Saving Funds: 
Compared to traditional tax saving instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) and bank fixed deposits; the lock in period of an ELSS fund is much lower.
While ELSS investment is locked in for 3 years, PPF investments are locked in for 15 years, NSC investments are locked in for 6 years, and bank fixed deposits eligible for tax deduction are locked in for 5 years.
As ELSS is an investment in equity markets and investing in this for a long term can give you better returns compared to other asset classes over the long term.
You can also opt for SIP investments, which bring about discipline in regular investing You can also get income from your investment amount in the lock in period if you opt for dividend schemes.

Let us now see the Disadvantages of ELSS: 
As ELSS investments are similar to stock market investments, all risks associated with equity investments pertain to ELSS.
Another disadvantage of ELSS is that you cannot withdraw your funds before the maturity date. 
Other instruments like PPF and bank deposits permit premature withdrawal, subject to certain conditions.

So these are some of the things you should know about Equity Linked Savings Schemes. 
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