Indian Investors especially senior citizens look for investment opportunities that can help them generate wealth, get regular returns, and save taxes. Here enters Equity Linked Savings Scheme

Equity Linked Savings Schemes or ELSS mutual Funds are tax-saving equity mutual funds. ELSS funds basically are equity funds that invest a major portion of their corpus into equity or equity-related instruments.

ELSS funds come with a lock-in period of three years, and there are no provisions to make a premature exit.
Individuals can invest any amount in ELSS, there is no upper capping, while the minimum investable amount varies across fund houses.

How Does ELSS Funds Work?

ELSS funds are equity funds with a diverse portfolio. These funds primarily invest in publicly traded firms stocks. The stocks invested in are drawn from a variety of market capitalizations (large, mid, and small companies) and industries. These funds seek to optimize long-term wealth appreciation. The fund management selects stocks after doing extensive market research to achieve the best risk-adjusted portfolio returns.

Taxation Rules

Since ELSS funds are locked up for three years, there is no way to realize short-term profit gains. As a result, you can only realize long-term capital gains. These gains are tax-free up to Rs 1 lakh per year. Additionally any earnings beyond this amount are subject to a 10% long-term capital gains tax.

If individuals invest in ELSS schemes, then they can avail tax exemption of the invested amount up to a limit of Rs. 150,000. Further, the income that’s earned under this scheme at the end of the three-year tenure will be considered as Long Term Capital Gain (LTCG) and will be taxed at 10% (if the income is above Rs. 1 lakh).

ELSS funds are the only tax-saving investment with the potential to offer inflation-beating returns. Investing in these funds gives you the twin benefits of tax deductions and wealth creation.