In this article you will get information about ELSS Mutual Fund. I had tried to cover maximum thing so that you get most of the information in single blog.
1. What is ELSS Mutual Fund?
2. It's types
3. It's Option/ ways to invest in ELSS fund
4. It's Feature
5. Who should Invest in ELSS fund
6. Things to consider before investing in ELSS fund
7. Tax Implications
8. Advantages & Disadvantage of ELSS
9. Conclusion.
Let's discuss above point's in brief.
1. What is ELSS Mutual Fund?
It is a type of diversified equity mutual fund that invest majority of its fund in equity & equity related schemes. 3 years of Lock in period is the important factor to look upon. Every individual has short term & long term financial goals. Fulfilling them requires discipline & commitment, this mutual fund can help them to stick to there investment for 3 years. During the lock in period, an investor cannot redeem or transfer the units to another scheme. The investor can exit the scheme by selling it after this period.
2. It's Types
a) Open-End ELSS
Under this scheme, an individual can invest at any given time as per their preference. The 3 year lock in period is however applicable, but once the lock in period ends, the redemptions can be made at any time by an individual choice.
b) Closed-End ELSS
Closed End ELSS only takes investments during the NFO (New Fund Offer) period & after that, they are closed for investments. The investors can liquidate their investment in the closed end fund after the completion of the 3 year lock in at only specific periods of time declared by the fund from time to time.
3. It's Option/ ways to invest in ELSS fund
There are 3 options for investors who wish to invest in ELSS
1. Growth Option:- Under this option the investor do not receive any benefits via dividends. The benefits will be given after completion of lock in period. The good thing about this is it helps to increase NAV, thereby multiplying investors profit. However the profit earn by the investor will depends upon market conditions.
2. Dividend Option:- Under the dividend option, the investors receive benefits in the form of dividends on a timely basis as opposed to a lumpsum figure at the end of the tenure. Any dividends earned under this options are not taxable. Hence no need to pay tax on earned dividend.
3. Dividend Reinvestment Option:- Under this option, investors will have an option to return the dividends earned as doing so will mean that value is added to the NAV. A good number of investors tend to choose this option.
4. It's Features.
* Many investor use SIP to invest in ELSS mutual fund, which is good way to ensure the regular flow of money. This ensure rupee cost advantage that partially nullifies stock market volatility
* Even in tough market condition the investor cannot redeem their investment. This helps prevent outflows & in turn helps for capital appreciation.
* The main goal of this fund is capital appreciation. Being an equity linked scheme, these are usually high return assets however, being market linked there is no guarantee of returns.
* Despite their short lock-in period, ELSS mutual funds have historically given considerably higher returns compared to NSC, PPF, VPF etc. that have longer lock in period.
5. Who should Invest in ELSS Fund
*Salaried Individual- When you are a salaried employee, there is a certain amount that goes towards Employee Provident Fund (EPF) which is fixed income product. If one wants to balance out risk & return on their investment portfolio the ELSS is the best option.
*First time Investor- If you are a new investor, ELSS is an ideal choice, since in addition to tax benefits you get a flavor of equity investing & mutual funds. Like all equity investments
6. Things to consider before investing in ELSS fund
*Fund returns:- Before you go for the fund compare the fund performance with its competitors & know whether it has given consistent performance in the past.
*History:- It is recommended to choose fund houses that have performed consistently over the long period.
*Expense Ratio:- The expense ratio depicts how much of your investments goes towards managing the fund. If the fund has a low expense ratio, it means you can have higher take-home returns.
*Fund Manager:- The fund manager is another factor to consider, because he/she is the person who plays a key role in management of your funds. The fund manager must be competent & must have great experience in picking the quality stocks so that to create a strong portfolio.
7. Tax Implications
1. ELSS as a Tax saving Instrument
ELSS qualifies tax exemption up to Rs. 1.5 Lakhs under section 80C of the income tax act. However if you compared it with other tax saving instrument ELSS have short lock in period of 3 years.
Short Term Capital Gain attracts a tax of 15%, while Long Term Capital Gain are only taxable if the gains exceed Rs. 1 lakhs during the financial year. Long term capital gain attracts 10% on the amount exceeding Rs. 1 lakh.
8. Advantages & Disadvantage of ELSS
9. Conclusion
These instrument is suitable for investor looking to grow their wealth & save taxes. Below is the summary of above things that is mentioned.
a. ELSS fund invests your money in equity mutual fund.
b. Lock period of these investment is 3 years
c. You can invest it in lump sum or follow a sip
d. There is no cap on the minimum or maximum investment.
e. ELSS mutual funds offer three options- growth, dividend, and dividend reinvestment.
I had tried to gather all relevant information & sum it up in this article. Hope you like it. If you find it helpful don't forget to share it with your connection.
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