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Budget 2019: Key things to keep in mind when investing in ELSS

ELSS has the lowest lock-in of just 3 years among all Section 80C options. ELSS saves up to Rs 46,800 a year in tax.

C.S.Sudheer        Last Updated: January 21, 2019  | 15:38 IST
Budget 2019: Key things to keep in mind when investing in ELSS

There's a famous saying - "A rupee saved is a rupee earned." Equity Linked Savings Scheme popularly called ELSS is one way in which you can save your hard-earned money.

ELSS is an equity diversified mutual fund, which invests heavily in stocks.  What makes ELSS special is the tax benefit. ELSS is the only mutual fund, which enjoys a tax deduction under Section 80C up to Rs 1.5 lakhs a year. ELSS is a good tax saving instrument for people in the higher income tax brackets.

ELSS has the lowest lock-in of just 3 years among all Section 80C options. ELSS saves up to Rs 46,800 a year in tax. Top ELSS funds have given 18-20 per cent annualised returns. The double bonanza of high returns and tax saving makes ELSS an excellent investment.

1. An investment in ELSS is for the long-term

ELSS has a short lock-in of just 3 years compared to the 15 year lock-in of PPF or the 5 year lock-in of National Savings Certificate. This doesn't mean ELSS must be treated like a short-term investment. Invest in an ELSS with a long-term investment horizon of 5-7 years.

2. ELSS invests in stocks

ELSS invests most of the money in stocks. This scares off many would-be investors who believe ELSS to be risky. Studies show volatility in the stock market can be beaten and higher returns enjoyed on staying invested for the long-term. Overcome risk in ELSS by staying invested for the long-term.

3. ELSS is great for higher tax payers

ELSS helps higher tax payers save up to Rs 46,800 a financial year in tax. Tax payers in the 30 per cent income tax slab who invest up to Rs 1.5 lakhs a year in ELSS can save Rs 46,800 a year in income tax and cess.

Do remember that Section 80C is an overcrowded section where many investments like PPF, NSC, life insurance premiums among others qualify for a tax deduction. Investing more than the required amount in ELSS, won't fetch an extra deduction.

4. Choose between SIP and lump sum

Systematic Investment Plan or SIP is a method of investing in mutual funds. Choose between investing small amounts regularly say once each week or month in an ELSS through SIPs, or a one-time investment called lump sum. Investing in ELSS through SIP averages the cost of investing and avoids the stress of paying in bulk.

(The writer is CEO and Founder of IndianMoney.com)

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