Indian taxpayers often look for different tax saver options to help reduce the taxation burden. Equity Linked Savings Scheme (ELSS) is one such major tax-saver option for Indian taxpayers. Equity Linked Savings Scheme (ELSS) funds are open-ended equity-oriented schemes that are offered as tax saving options. This mutual fund scheme is part of the tax benefits under the 80C section of the Income Tax Act, 1961. This scheme aims to promote equity-linked investments while providing a tax saving option.
If you do not have any stocks or mutual funds investment, start with ELSS mutual funds to taste the equity market
Where ELSS mutual fund invests?
The top ELSS mutual funds are,
- Mirae Asset Tax saver fund
- IDFC tax advantage ELSS fund
- Kotak tax saver fund
- Quant tax plan fund
We can take one of the fund Quant tax plan fund and explore it portfolio. It invests in 49 stocks in the equity market. The top holdings are, Ambuja cements, ITC, Adani ports, SBI, L&T ltd, NTPC ltd, Kotak mahindra bank, Infosys, Maruti Suzuki, HDFC bank, Airtel, Bosch and many more stocks in the equity market.
Why 3 years lock-in period :
It can be said as the period that the investor cannot withdraw his funds. As the ELSS comes with a lock-in of 3 years, it means that a user can withdraw the funds only after 3 years to avail tax saving options. It also allows a user to continue his investment or withdraw it after the lock-in period.
ELSS has lowest lock-in period of just 3 years as compared to others where the lock-in ranges from 5-15 years in 80C tax saving option
For example, let’s say Mr Ram investss total of Rs 2 lakh at once on Jan 1, 2022. In this case, the lock-in period of 3 years is reached on 1-Jan-2022. Ram can redeem the respective units after Jan 1, 2025. The same applicable for SIP. If you invest 1000 rupees in Jan 2022, Feb 2022, Mar 2022, You can withdraw the respective unit in Jan 2025, Feb 2025, Mar 2025.
Can I withdraw my ELSS before 3 years? You can’t withdraw
Once the lock-in is over you can decide when you want to take money out You don’t have to necessarily exit after 3 years. You can continue to invest and withdraw whenever you want. You can continue to invest to enjoy long term return from ELSS mutual funds.
Is it compulsory to withdraw ELSS after 3 years? No.
What happens if I don’t withdraw ELSS after 3 years?
You can redeem the respective unit from the date of investment in ELSS funds. It is not compulsory to redeem after 3 years. You can keep the investment for long term return and withdraw when market is high.
Loan against ELSS Funds:
Many banks offer loan against ELSS funds. SBI, HDFC and many more NBFC offer loan against mutual funds. You can take 50% of your invested value as a loan from the bank against the ELSS funds. It would help you in emergency within 3 years lock-in time. You have to provide document for your mutual fund holding to get loan against mutual funds.
Is ELSS taxable after 3 years?
Since ELSS funds are locked-in for three years, there is no possibility of realising short-term capital gains. Therefore, you can realise only long-term capital gains. These gains of up to Rs 1 lakh a year are made tax-free, and any gains above this limit attract a long-term capital gains tax at 10%.
How to start Investing ELSS funds:
Login to anyone of the mutual funds aggregator platforms such as Zerodha coin, Groww, Kuvera or PayTM money. Select the fund to invest and follow the instruction to invest in ELSS mutual funds.