Why is ELSS tax free?

Why is ELSS bad?

ELSS fund has the shortest lock-in period among all tax-saving investment options. The units are free for redemption after 3 years. This leads some investors to think that the time horizon for an ELSS fund is just 3 years, but that’s not true, and one shouldn’t invest in ELSS if the investment horizon is only 3 years.

What are the disadvantages of ELSS?

Disadvantages of an ELSS fund

  • Limited total benefits. Tax benefits for a particular financial year are available only to the tune of ₹150,000 under section 80C, irrespective of the total amount of investment in an ELSS fund. …
  • Tax benefits are limited.

What happens if you redeem ELSS before 3 years?

The simple answer is that you cannot withdraw your ELSS before the lock-in period. However, you can choose to get a loan against mutual funds (LAMF) if you want to fulfil an urgent need for funds. Many lenders allow you to keep your mutual funds as a collateral for a loan.

Why ELSS is better than PPF?

However, PPF offers much lower returns over a longer time horizon than ELSS. The tax benefits and capital safety are more in favour of PPF; ELSS certainly is an option for better returns. It depends on whether you have the appetite for market volatility or not.

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Is ELSS safe investment?

ELSS funds have a lock-in period of 3 years, the shortest among all options eligible for tax saving under Section 80C. Public Provident Fund has the highest lock-in of 15 years whereas other options like Tax saving FDs, Life Insurance Policy and National Savings Certificate have lock-in periods ranging from 5-10 years.

Can I invest in ELSS for 20 years?

Being a flexicap fund, ELSS funds get the flexibility to change their portfolio as per the economic cycle and market conditions. Hence, these funds have the potential to deliver higher returns in the long term. If you stay invested in an ELSS fund for 10-20 years you can easily expect a compounded return of over 10%.

Is ELSS maturity tax free?

Why ELSS is tax-free? The redemption proceeds of ELSS are not entirely tax-free. The long-term capital gains of up to Rs 1,00,000 a year are tax-free, and any gains above this limit attract a long-term capital gains tax at the rate of 10% plus applicable cess and surcharge.

What is benefit of ELSS fund?

An equity-linked savings scheme or ELSS is a tax-saving investment under Section 80C of the Income Tax Act, 1961. By investing in ELSS, you can claim a tax rebate of up to Rs 1,50,000 a year and save up to Rs 46,800 a year in taxes. An ELSS is the only kind of mutual fund eligible for tax benefits under Section 80C.

How do you benefit from ELSS?

If you are investing in an equity-linked savings scheme (ELSS) to claim the tax benefit under section 80C of the Income-tax Act, 1961, then do make sure that you have invested marginally more than the specified limit of Rs 1.5 lakh in a financial year.

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What should I do with my ELSS after 3 years?

You can choose to invest in a lump sum or instalments via a SIP. All ELSS funds have a lock-in period of three years. Once the lock-in period ends for a particular instalment/lump sum investment, the ELSS becomes an open-ended equity-oriented investment scheme with full liquidity.

Can I redeem ELSS after 3 years?

If you have made your ELSS Mutual Fund investment via the lump sum route, i.e., at one go, all your units will be allotted on the same day. And therefore, once the 3 year lock-in period is over, you can redeem your entire ELSS investment in one go.

Can ELSS be stopped?

You can actually hold on to the ELSS fund as long as you want. For example, ELSS funds have an advantage over diversified equity funds in the sense that fund managers can take a longer term perspective due to the 3-year compulsory lock-in.

Can I have both ELSS and PPF?

Mode of investment: It is very convenient to invest in both PPF and ELSS. In case of ELSS, one can invest in lumpsum as well as through systematic investment plans (SIPs). Similarly, one can invest lumpsum as well invest in maximum 12 installments in a financial year in PPF.

Is LIC better than PPF?

While LIC policies serve the purpose of insurance, a PPF serves the purpose of savings. PPF is a Public Provident Fund meant for long-term savings and retirement.


Points LIC PPF
Risk Safe Safest
Target audience Caters to those who have dependents Caters to everyone
Tenure Flexible 15 years
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