- Lock-in Period: ELSS funds have a mandatory lock-in period of three years, which is the shortest among all tax-saving investment options under Section 80C.
- Equity Exposure: ELSS funds invest a significant portion of their portfolio in equity and equity-related instruments. This provides the potential for higher returns, but it also comes with market-related risks.
- Tax Deduction: Investments made in ELSS funds are eligible for a deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act. This deduction is part of the overall limit of ₹1.5 lakh, which includes other eligible investments and expenditures.
- Dividend and Growth Options: ELSS funds typically offer both dividend and growth options. In the growth option, the returns are reinvested, while in the dividend option, dividends may be distributed to investors.
- Flexibility: ELSS funds offer flexibility in terms of the investment amount. Investors can choose to invest through lump-sum contributions or through systematic investment plans (SIPs).
- Professional Fund Management: ELSS funds are managed by experienced fund managers who make investment decisions based on market conditions and the fund’s objectives.
- Risk and Return: While ELSS funds have the potential for higher returns due to their equity exposure, they also come with higher volatility and market-related risks. Investors should have a risk appetite aligned with equity investments.
- Ease of Redemption: After the mandatory lock-in period of three years, investors can redeem their ELSS units. This flexibility makes it easier for investors to access their funds compared to other tax-saving instruments with longer lock-in periods.
