What is Equity Linked Savings Scheme (ELSS)?
An Equity Linked Savings Scheme (ELSS) is an open ended mutual fund which provides investors both the better capital appreciation in longer term and the tax benefits as it comes under section (u/s) 80C of the Income Tax Act 1961. ELSS has a lock in period of 3 years that means investors can exit from these funds by selling only after completion of 3 years from the respective investment date.
Like the other equity funds, ELSS funds provide both the dividend and the growth options. In dividend options, investors get a regular dividend income even during the lock in period. In other words, it can be said that ELSS is a diversified equity mutual fund where the major part of its corpus (minimum 65%) is invested in equity or stocks or related securities. By buying units of ELSS funds, investors become a part owner of each of the securities holding in portfolio.
ELSS funds are especially recommended to those investors who are not only aiming to earn high potential of the equity markets but also take higher risk on investments. A Systematic Investment Plan (SIP) is the best method to invest in such schemes and brings discipline to tax planning. However the investment objective of these funds is long term capital growth with tax benefits.