An equity linked savings scheme (ELSS) is a type of equity fund and the only mutual fund which qualifies for a tax deduction under Section 80C of the Income Tax Act.
It is a popular and high raked tax saving scheme, enjoying the short lock in period as compared to other investment plans or options.
Advantages of ELSS:
- Huge savings in taxes
- Highest returns among other 80C options
- Lowest lock in period
- Instant Investment proof
Disadvantages of ELSS:
Every scheme comes with its pros and cons. There is no doubt that ELSS is better as compared to all other plans in terms of return, payment, tax benefit but still there are few disadvantages attached to the scheme:
- Lot of documentation work
- Difficult to choose the funds per your suitability
- Higher return depends on market risks, so not guaranteed.
- Premature withdrawal is not allowed.
Comparison of ELSS and other schemes
|Lock in Period||ELSS (Tax saving) has lock in period of 3 years only||Fixed deposits (tax saving) has a lockin period of 5 years
PPF has a lock in period of 15 years
NSCs and NPS has a lock in period of 5 years.
|Return||Between @15% to 18%||In FD : between @6.5% to 8 %
PPF and NSC @8%
|Amount||As low as Rs. 500 per month (Allowed in SIPs also)||Lumpsum amount|
Tax Benefits : Income TaX Act, 1961 allows a deduction under section 80C of Rs 1.5 lakh.
However, The long-term capital gains from an ELSS is taxable after the specified limit of Rs. 1 lakh.