An ELSS fund is an equity-linked savings plan which is the only kind of mutual fund eligible for tax reductions under the provisions of Sec 80C of the Income Tax Act, 1961. These are funds that invest most of their portion of their corpus into equity or equity-related instruments. Also known as tax saving schemes, they offer a tax rebate of up to Rs. 1,50,000 and also save up to Rs. 46,800 a year in taxes by investing in them.
ELSS funds have a lock-in period of 3 years which is mandatory. Recently, many taxpayers have resorted to investing in ELSS to avail its tax benefits. Moreover, the income that you gain under this scheme at the time of maturity after three-year tenure will be considered as Long Term Capital Gain (LTCG) and therefore, will be taxed at 10% if the gain is above Rs. 1,00,000.
Features of ELSS
Some of the salient features of ELSS funds are given below:
- The minimum percentage of the total corpus invested in equity or equity-related instruments is 80%
- Even though there is no maximum tenure of investment, there is a lock-in period of 3 years
- The investment of the funds is done in a diversified manner, across a variety of market capitalisation, sectors and themes.
- The income from this investment is treated as LTCG and in accordance with the prevalent tax rules.
- The invested amount is exempted from tax under Section 80C of the Income Tax Act, 1961.