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Full-Form of ELSS
The full form of ELSS ie Equity Linked Savings scheme makes it understandable that it is an equity mutual fund. Tax saving mutual funds that help you avail tax deductions are known as ELSS. These are saving alternatives under section 80C of the income tax act. These are meant to be mutual funds that people invest in throughout the year. But some people search for ELSS full form at the last moment, in a hurry, when they do not have sufficient investments to show for the existing financial year.
Uses of ELSS
ELSS is for those who are just starting in their careers. Clients who are making a humble living and wish to go for mutual funds that are not high on risk. It is also for the people who are getting a lot of other opportunities to invest in high-risk investments and need some form of investment that will help them save on tax.
ELSS is a kind of investment that does not have any age bar, you can start as young as you want. ELSS is also for the kind of people who do not believe in putting all eggs in one basket. As in invest in the top 3 or 4 high performing ELSS and get the best kind of returns over time.
ELSS is a great avenue to regularly invest small amounts amass a good return over time. By making use of the Section 80C for tax saving and having your investment locked in for three years not only creates wealth but also ensures you do not access your money during the tenure. The tenure of three years is not as binding as that of a Public Provident Fund or a Savings Deposit that requires 15 and five years’ commitment, respectively. Under this Section, you may invest up to INR 1.5 lakh and reduce your taxable income amount.
Different Forms of ELSS
While opting for the ELSS funds one has three options to choose from which are explained below:
- There is a growth option – Where the holder will not get any benefits in the form of dividends. The holder will receive the benefits at the end of the tenure which will help in improving the NAV and thus multiply your profits. Also, this will be completely dependent on market conditions. So it may work in your favor or maybe completely bad for you but it is possible that the profits might be great.
- Dividend option – The option where the investor gets the timely benefit of dividends as compared to a wholesome amount at the end is called the dividend option. The best part is any dividend that the investor receives is not liable for taxation by the government and will receive the entire amount.
- Dividend Reinvestments option – The final option that an ELSS policyholder will receive is a dividend reinvestment option. Where the policyholder has the option of giving back the dividends received to add to the NAV. It is a good option in the case that the market is performing very well during the 3-year tenure of the Lock-in period. You will gain substantially from it and eventually when you will withdraw your amount in hand will be quite considerable as well.
Pros and Cons of ELSS
| Pros | Cons |
|---|---|
| A minimum lock-in of the capital for just 3 years which is considerably less in comparison to other mutual funds. | It is very difficult to decide which fund to put your capital in. |
| ELSS can earn returns that are substantially higher than the rate at which we are investing. | A ton of documentation is required. |
| Once the lock-in period is over, Earnings are 100% tax-free. | There are no guaranteed returns, as this is an equity-based mutual fund that makes it subject to market returns, hence it is not possible to confirm whether or not you will get any returns. |
| The power of compounding will help you earn in multiples of your principal amount. | Most mutual funds won’t accept investments from people living in Canada and the US. |
| There is no maximum limit to invest. | No premature withdrawals are allowed. |
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ELSS full form with SIP
ELSS is an equity-linked savings scheme and SIP is a systematic investment plan. Both go hand in hand for a very good reason.
SIP investment assures about the creation of wealth in the future. Being flexible in investments the amount is automatically debited from one’s bank account. That money is invested in mutual fund schemes. Along with every installment that person makes and the added units of schemes come into the power at current NAV.
A lump sum amount is not the idea of going about your investments as it might be very costly to your wallet. It is a one-time investment you do for one year, like say, Rs. 12,000 annually. If you have a huge disposable amount in hand and have a higher risk tolerance, you may opt for a lump sum investment.
SIP is the equivalent of EMI’s, the major difference is- instead of you paying for something that you have already spent on, you are investing in something that can end up becoming something of a very substantial amount.
SIP does not attract any kind of additional taxation and does not has any drawbacks. It rather opens up opportunities for people who make a humble living and yet wish to make the most of investment opportunities at hand.
Comparative Analysis of ELSS with other Saving Form
As we know about the different types of schemes like ELSS, ULIP, PPF, etc. Here we have compared a few of them:
| Basis of Comparison | ELSS | PPF | ULIP | EPF | Life Insurance |
|---|---|---|---|---|---|
| Definition | Equity Linked Saving Scheme (ELSS) is a type of Mutual Fund where investments are made in Equity. | A PPF( Public Provident Fund) is a savings scheme offered by the Government of India. The interest on the account is paid by the government of India and set every quarter. | ULIP is an investment plus insurance product where one part of the investment is used for ensuring the investor, while the other part is invested in the products of his/ her choice. | Employee Provident Fund (EPF) acts as a saving tool for the employees. The employee and the employer contribute an equal amount towards savings that can be received upon retirement or after switching jobs. | Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. |
| Interest Rate | 15%-18% | 8% | 22.21% | 8%-9% | 6%-8% |
| Lock-in Period | 3 years. | 15 years | 5 years | The person having more than Rs. 15,000 per month, is not eligible. | 5 years |
| Tax benefits | tax deduction of up to Rs1.5-lakh/annum under Section 80C. | Money deposited in a PPF account under Section 80C of the Income Tax Act can get up to Rs 1.5 LAkh Benefits. | The invested amount offers tax deduction under Section 80C, but gains are taxable. | The invested amount offers tax deduction under Section 80C | The invested amount offers tax deduction under Section 80C and 10(10D) |
| Minimum Investment | ₹500 | ₹500 | ₹1,00,000 (for plans 45 years and below) | 12% of Wages | ₹1,00,000 |
| Liquidity | High-Withdrawal at all times after the lock-in period. | Low -Partial withdrawals after the expiry of 7 years from account opening year. | Funds can be available after the lock-in of 5 years subject to further policy conditions. Different Form of ELSS Funds | You can withdraw 75% of your EPF corpus if you have been unemployed for a period of one month. | Life Insurance has a low liquidity ratio. |
In the above-mentioned table, ELSS is compared with different forms of schemes on the basis of their lock-in period, tax benefits, min. investment, liquidity.
How to invest in ELSS
The ELSS investment procedure is very simple, your KYC form and PAN card details in place. One can later approach asset management companies. There are many ways to go about ELSS, you can do all the investment-related procedures by yourself, or you can appoint a middle man or mutual fund agent.
The final option being you can have a third person invest on your behalf. The risk in the last option being when the third person will invest on your behalf he will only pick funds that will provide his high rate of returns now as compared to any time later in the future. He will try to gain maximum profits out of the dividends that he will receive.
One can also invest ELSS online, just look out for how to invest in ELSS online. You can easily register yourself at any online mutual fund manager website such as ours ie WealthBucket and get going with your ELSS related investments right away. You will not have to pay any additional charges and you are not subject to any terms and conditions.
All and all investing in ELSS is a very smart way to grow your money, ELSS brings to the table a very fine blend of growth, tax savings, and stability. But the key here is getting the right kind of advice and guidance. When given the right direction you will be able to make out the top-performing ELSS funds and will be able to categorize your investments based on the same.
Before signing off, you should check our website WealthBucket. We have tons of features of investments including equity mutual funds, liquid mutual funds or debt mutual funds. You can either contact us at +91 9999379929 or email us at contact@wealthbucket.in
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