ELSS: When One To Sell Their ELSS Holdings?

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You can get all these advantages by investing in an Equity Linked Savings Scheme (ELSS). This open-ended mutual fund (MF) invests your money in equities and equity-linked securities.

In addition to providing significant returns, ELSS enables you to use Section 80C of the Income Tax Act, 1961’s tax exemption benefits. By making a lump-sum investment or selecting a Systematic Investment Plan, you can invest in an ELSS (SIP). And like the majority of tax-saving tools, it has a required lock-in term.

What are ELSS Funds?

A mutual fund scheme known as an “Equity Linked Saving Scheme” (ELSS) invests in equity markets and is eligible for tax benefits under Section 80C of the Income Tax Act. Investments made in ELSS mutual funds up to Rs 1.5 lakh are eligible for tax deductions under Section 80C. It generates tax savings of up to Rs 46,800 over a fiscal year. The lock-in period for these funds is also the shortest of all the choices available under Section 80C at just three years after the date of unit allocation.

Every investor must have ELSS due to its dual benefits of tax savings and the possibility for higher returns than standard tax-saving investments.

When to sell your ELSS investments?

ELSS funds offer the lowest lock-in period, at just three years, compared to other tax-saving investing alternatives. As a result, you cannot withdraw the money before three years. An ELSS transforms into a diversified, equity-oriented plan with strong liquidity once its lock-in period is over. But is it necessary to liquidate your holdings now?

Simply put, no. Although you can now redeem the units as often as you like, you are not required to do so immediately. And if these mutual funds are doing well, you should ideally keep your investment there. You must hold onto your investments for a long time to get the best profits. With a long-term view, you will also benefit from compound interest.

Tax Benefits of ELSS Funds

Tax advantages are provided for investments made in ELSS funds under Section 80C of the Income Tax Act. The Income Tax regulations only permit a tax deduction of up to Rs. 1.5 lakh, even though there is no maximum investment amount.

Assuming that your investments in other tax-saving products like provident funds, life insurance premiums, national savings certificates, and a few the are also included in this Section 80C deduction, the value of Rs. 1.5 lakh is an aggregate.

Lock-in period of ELSS Funds

ELSS funds can be a great way to increase your money in addition to helping you save on taxes. Unlike other types of equity funds, where unfavourable market action may drive you to abandon the fund fast due to the lock-in, you get to watch how they perform over the long term.

But remember that the SIP you made today won’t be redeemable until it has run its entire 3-year cycle. The earlier completed ones will be redeemed following their three-year cycle. As a result, ELSS employs the first-in-first-out technique.

Investment Options

Depending on your tastes and needs, you have the choice to invest in various ELSS types:

Dividend:

You have the option to select regular dividend payments made from your investment. You can get the rewards on your investment as regular payments as time goes on.

Growth:

At the end of the maturity period, you can take advantage of the compounding gains by investing the proceeds from the initial investment in more stocks.

Conclusion

An ELSS fund is an efficient financial tool for tax savings and respectable profits. However, you must be careful not to invest in it with unrealistic expectations. Before moving forward with your investment objectives, it would be a good idea to learn more about ELSS funds, how they operate, and whether they suit your investing style. A financial advisor should always be consulted before making any decisions.

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