Common Myths About ELSS Funds and What You Need to Know

ELSS, or Equity Linked Saving Schemes, are mutual funds that combine stocks and debt investments. They are a type of tax-saving mutual fund that allows investors to claim deductions of up to Rs 1,50,000 annually under Section 80C of the Income Tax Act, 1961. These funds have a lock-in period of three years, encouraging a long-term investment approach for potential wealth accumulation and tax benefits. Let's clarify some common misunderstandings about ELSS funds and reveal the truths behind them.

• Table of contents

1. Myth 1: Higher-risk investments always result in higher returns
2. Myth 2: Investing in ELSS requires big initial capital
3. Myth 3: ELSS Funds ensure tax-free returns
4. Myth 4: There are few choices for investing in ELSS funds
5. Myth 5: ELSS funds may be more suitable for experienced investors

Common myths about ELSS funds 

Here are some common misconceptions about Equity-Linked Saving Scheme (ELSS) funds.

Myth 1: Higher-risk investments always result in higher returns

Equity-Linked Saving Scheme (ELSS) funds are often associated with higher risk and potentially higher returns. This is because ELSS is an equity-oriented mutual fund, which might be related to higher risk and potentially higher returns. However, ELSS funds might be able to manage risk by diversifying investments across different asset classes (equity and debt), aiming for potentially higher returns over long term.

Myth 2: Investing in ELSS requires big initial capital

ELSS funds might be more flexible than many investors realize. You may only need a small amount of money upfront to invest in them. You can use Systematic Investment Plans (SIPs) to make smaller, consistent contributions at regular intervals, such as monthly. Investors can probably start investing in ELSS funds without a significant initial capital resource.

Myth 3: ELSS Funds ensure tax-free returns

ELSS funds might be considered as a suitable choice for saving taxes through mutual funds. However, there needs to be more clarity about the tax benefits they offer. It's important to understand that ELSS funds provide tax deductions under Section 80C of the Income Tax Act, 1961 allowing investors to claim a taxable income of up to Rs. 1.5 lakh. They do not guarantee tax-free returns but may offer certain tax benefits.

Myth 4: There are few choices for investing in ELSS funds

ELSS funds might offer diverse investment options across different sectors and industries. There is a misconception that ELSS funds have limited investment choices due to a need to understand their structure. Investors may have the flexibility to explore various sectors and industries based on their preferences and risk appetite.

Myth 5: ELSS funds may be more suitable for experienced investors

ELSS funds might often be misunderstood as only suitable for experienced investors, but that might differ. These funds are designed to accommodate investors at all levels of expertise, from beginners to experienced. Additionally, investments in ELSS receive guidance from experienced fund managers to help navigate market trends, making ELSS accessible to a broader investor base.

Conclusion

To sum up, ELSS funds offer a good investment option for wealth generation and tax savings through their balanced approach to risk management, flexible investment options, taxation benefits, different investment opportunities, or accessibility at all levels.

FAQs

How do ELSS funds differ from other mutual funds?
ELSS funds are different from other mutual funds mainly because they offer tax-saving benefits under Section 80C of the Income Tax Act, 1961 while providing potential for long-term wealth creation.

What is the lock-in period for ELSS funds?
ELSS funds have a lock-in period of three years, which might be much shorter than other tax-saving investment options.

Are ELSS funds suitable for beginners?
ELSS funds can be significant for beginners because they allow for flexibility through SIPs and might be suitable for investors at all levels of expertise.

What are the tax benefits of investing in ELSS funds?
Investment in ELSS funds offer tax deductions on taxable income up to Rs 1.5 lakh under Section 80C, making them a tax-efficient investment option.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals, and horizon. This information is subject to change without any prior notice.