ELSS funds are equity funds. Any investor who invests in ELSS funds should understand that they are investing in equity funds before going into tax benefits associated with these funds. Within equity funds, ELSS funds are similar to large-cap funds with some mid/small cap flavors.

The ELSS or equity-related savings scheme is similar to another equity fund, with an additional benefit of Income Tax Act deduction U / s 80C, with a maximum amount of Rs.1.50 lakhs. An investor has all the advantages of investing in an equity fund by investing in ELSS funds. ELSS must have a portfolio of at least 80% equity securities. Investor investment has closed for three years. I am going to keep it very short and straight because the hype around ELSS is very high.

What is unique about ELSS funds?

Under Section 80C of the Income Tax Act, any investment in an ELSS equity fund is exempt from income tax. Before taxes calculate, it can deduct from your income. It is subject to a total investment limit of Rs 1.5. This cap is not limited to ELSS funds, but can also enjoy other expenses/investments.

There is also a 3-year lock-in to enjoy this tax benefit. Any benefit during this period is tax-free and the withdrawal amount after three years is also tax-free. One result ELSS list as EEE Investment – Investment Amount Tax Exemption, Return Tax Exemption and Withdrawal Amount Tax Exemption. Nevertheless, if you are investing for more than one year, you will get the last two profit-tax-free appreciation and tax-free withdrawals with any equity fund.

Should you invest in ELSS funds?

If you think you should invest in an equity fund, you should only invest in ELSS funds. Equities have the potential to produce double-digit returns but can show significant performance fluctuations in any one year, including negative returns. So, in general, you should consider investing in an equity fund if you can invest for a more extended time (7+ years, even if the lock-in is only three years) and also that you have a risk appetite for sitting and in the meantime.

If you do not invest in ELSS investment, can you still get 80C profit?

If you do not want to invest in an ELSS / equity fund or you do not want to invest the entire amount of Rs 1.5 lakh in an equity fund, then you are still under 80C through other expenses and investments and claim full tax benefits available.

Some of the common expenses covered by this act are life insurance premium payments, home loan principal payments, children’s education expenses, etc. PF and VPF contributions are also eligible for 80C. PPF and Sukanya Samriddhi Yojana are two other EEE investments that fall under this act. Both loans are in the flavor of debt investment — they pay each year continuously that tie to current interest rates —. They are suitable for building diversified portfolios / for risk-averse investors.