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|What is ELSS Mutual Funds?
Most of us during the month of march rush up to our auditors or financial planners for tax planning to invest upto 1 lac which qualifies for tax exemption under section 80 (C) . Most of us end up in paying LIC premium, PPF, NSC, 5 year bank FDs and other traditional tax savings instrument. Let us go through one another option available to us – ELSS.
ELSS – Equity Linked Savings Scheme is a type of mutual fund which is qualified for tax exemption under section 80 c. Lets dig into more information on this scheme.
As per Income Tax act 80c investment up to Rs 1,00,000 are eligible for deduction from the gross total income hence reducing the total taxable income. For example if your total annual income is Rs 3,00,000 and you invest Rs 1,00,000 in ELSS then your taxable income will become Rs 2,00,000.
Previously there was an upper limit for investing in tax saving instruments like ELSS of 5,00,000. Only individuals with less than 5,00,000 annual income are allowed to invest in tax saving instruments. But last year financial budget removed this restriction and now any individual can invest in ELSS irrespective of their income level.
Advantages of ELSS over NSC and PPF
Both Equity linked saving scheme and diversified equity scheme operates in same way. Both are high return and high risk schemes. But there is a 3 year lock in period of ELSS and it provides tax benefits too.
Systematic Investment Plan
Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up. For eg if you are investing Rs 1000 every month and you will get 100 units for when Net Asset Value (NAV) is 10 and will get 50 units when NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations by rupee costs averaging.