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The Economic Times

Using dips to invest in ELSS

The sharp fall in the stock markets is making many financial planners tell investors to plan their tax savings and put in Rs 1.5 lakh into ELSS funds to benefit from Section 80C exemptions

1. What is a ELSS fund? How much can one invest every financial year?

Investing in equity-linked savings schemes (ELSS) is one of the ways an investor can save tax under Section 80C. Investors can choose between the dividend option or growth option. You can invest any amount upto Rs 1.5 lakh in any ELSS either at one go or in phases during the financial year to get a tax deduction. This is an opportunity to earn higher returns over the long run.

2. How can one invest in such a mutual fund scheme?

Like any other mutual fund scheme, an investor can put money in an ELSS. Investment can be done by filling the relevant form of the fund house by writing a cheque or through online fund house websites and through third party online portals. Since there is time till March to complete this investment investors can stagger their investments over the next six months. For this they can use systematic investment plan (SIP) or systematic transfer plan (STP). This will help you stagger your investment and give you the benefit of rupee cost averaging.

3. What advantage does ELSS have over other options under Section 80C?

Amongst all tax saving schemes ELSS has the shortest lock in period of three years.

Compared to this, the Public Provident Fund (PPF) has a minimum lock-in of 15 years, and allows only conditional withdrawal before that. The Employee Provident Fund is usually locked in for the term of your employment. Other tax saving products like tax-saving fixed deposits, or the National Savings Certificate (NSC) are locked in for a period of five years and above. The National Pension Scheme (NPS) is locked in until you reach 60 years of age, and only allows conditional withdrawal. ELSS also offers you dividend option, wherein as and when the scheme declares a dividend you can get intermittent cash flows.

4. What happens to the investment once the three-year lock-in is over?

Investors have the option to continue to hold the mutual fund units after three years or redeem them if they require the funds. Wealth managers feel investors should consider ELSS as a part of their equity allocation and can continue to hold the scheme if it performs in line with their expectations as it would help them meet their financial goals.
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