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ELSS

What is an ELSS Fund?

An ELSS Fund, short for Equity Linked Saving Scheme, offers investors a tax-advantaged mutual fund opportunity presented by PTIC INDIA. This investment vehicle pools funds from multiple investors to generate returns through strategic investments in businesses and other revenue sources. ELSS aims to facilitate wealth creation while enabling investors to avail deductions of up to Rs. 1,50,000 from their annual income in India, as per Section 80C of the Income Tax Act.

How does ELSS work?

ELSS Funds, categorized as diversified equity funds, allocate investments across publicly traded equities in predetermined proportions to maximize long-term wealth appreciation. These portfolios comprise stocks from various market capitalizations and industry sectors, meticulously selected by fund managers based on extensive market research.

Features of ELSS Funds:

  1. Shortest Lock-In Period: ELSS boasts the shortest lock-in period of three years compared to other tax-saving instruments, providing greater liquidity in the medium run.

2. Potential for Higher Returns: With market-linked returns, ELSS offers the potential for significantly higher wealth accumulation compared to fixed-income instruments like PPF and FDs

 `3.  Improved Post-Tax Returns: Long-term capital gains from ELSS are tax-free up to a ceiling, with gains beyond subject to a favorable tax rate of 10%, ensuring the best after-tax returns.

4. Convenient Investing: Monthly Systematic Investment Plans (SIPs) offer hassle-free and convenient investment options for ELSS Funds.

Tax Benefits of ELSS:

Tax-saving mutual funds known as Equity Linked Savings Schemes, or ELSS funds, are one of the most popular techniques of tax planning. Since the returns are related to stock market performance, these funds have the potential to deliver higher returns than conventional tax-saving instruments. The majority of ELSS funds’ assets are typically invested in stocks. Under Section 80C of the Income Tax Act, 1961, you can obtain an income deduction of up to Rs. 1.5 lakh using ELSS in a financial year. This corresponds to a tax savings of Rs. 46,800 if you belong to the highest income category.

ELSS

Reasons to invest in ELSS

You can deduct up to Rs. 1,50,000 per year from your taxable income under Section 80C of the Income Tax Act.
ELSS investments have a three-year lock-in period, which is the shortest of any 80C investment.
By investing in ELSS Mutual Funds, you can save up to Rs. 46,800 per year if you belong to the highest tax bracket and better utilize Section 80C provisions.
Gains are eligible for Long Term Capital Gains, which are tax-free up to $1 lakh and only 1% beyond that.

Factors to consider before investing 

Before investing in ELSS Funds, consider the following factors:

  1. Fund Returns: Compare fund performance against benchmarks and competitors for consistent returns.
  2. History of Fund House: Opt for fund houses with a proven track record over five to ten years.
  3. Expense Ratio: Choose funds with lower expense ratios for higher take-home returns.
  4. Financial Parameters: Analyze metrics like Standard Deviation, Sharpe Ratio, Alpha, and Beta for risk assessment and performance evaluation.
  5. Fund Manager Expertise: Assess the experience and expertise of the fund manager in portfolio management.

Investing in ELSS Funds offers not only tax benefits but also the potential for higher returns, making it an attractive option for investors seeking wealth accumulation with reduced tax liabilitie

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