Equity-linked Savings Schemes

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ELSS returns depend on the fluctuations in the equity market. It also hinges on the stocks that the particular fund has invested in. ELSS works well for those seeking to invest in the equity market; sans risk cover. ELSS can be open-ended or close-ended.

In ELSS, the amount is invested in equities. Units of the ELSS are valued according to the prices of the stocks that the particular fund has invested in. ELSS returns are tax-free. They qualify for income tax deduction under section 80C of the I-T Act. Investments in ELSS have a 3-year lock-in period.

Investing in ELSS through systematic investment plan (SIP) goes a long way in using the power of compounding. It enables combining low risk with good returns and tax benefits. You can make use of SIP to create wealth over a period of time. It inculcates monthly savings. You get a higher yield on account of the tax savings too. ELSS investment can be done on monthly, quarterly or annual basis.

Though these funds are subject to the ups and downs of the equity market, the 3-year lock-in period evens out and give you good returns in most cases. Investing in ELSS is ideal in high growth economies such as ours.