What you need to know before investing in ELSS

Disclaimer: This story is for informational purposes only and should not be taken as investment advice.

Equity linked savings schemes (ELSS) are a type of mutual funds and a much sought after investment.

In an ELSS, customers invest money in any asset management firm and they will make expert investment decisions to increase your wealth over time. Decisions to invest in debt and equity markets and in what ratio are taken by the firm.

Mutual funds are synonymous with ELSS with the exception that ELSS has a three year lock-in period unlike other mutual funds that are liquid and flexible.

It is the only mutual fund that allows tax rebate under Section 80C.

The tax deduction under the scheme goes up to Rs 150,000 from the total annual income.

Now investors can invest in more than one ELSS.

“The only thing to remember is that you can only save upto Rs 1.5 lakh under Section 80C. If you are already saving 1.5 lakh, you can choose another equity scheme rather than going for another ELSS. Invest in ELSS only if you want to save taxes,” a report by ET Mutual Funds said.

While choosing an asset management company to invest in one should note the trends of the market closely.

Financial advisor should be consulted before venturing out on ELSS investments.

“Do not consider performance alone as other invisible parameters like market fluctuations and consistency of the fund also come into play,” tax consultancy website, ClearTax said.

Two asset management companies recommended in the ET report were.

1. HDFC Taxsaver
2. Aditya Birla Sunlife Tax Relief 96

“Before you invest in ELSS have a financial goal. Be it owning a home, funding children’s education or saving for retirement – know what you are saving for. Next, figure out a rough estimate (no one can know the exact amount, of course) and set a timeline for each goals. Decide on the periodic payment based on this,” ClearTax added.

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