Equity linked savings scheme aka ELSS has been gaining popularity of late. Higher ROI coupled with tax-efficiency has made this scheme a win-win investment option for investors and more and more of them are coming forward to put their money in these schemes.
Nevertheless, there is no dearth of myths surrounding these open-ended mutual funds. People have many misconceptions about ELSS and many a time, it is these misconceptions that make them develop cold feet, making them put off their plans to invest in ELSS and go for the low-return, traditional investment schemes. So, today we take a look at these very myths and also debunk them with the factual reality.
Myth 1: The 3-year lock-in period of ELSS means the scheme matures after three years
Fact: The mandatory 3-year lock-in period only means that the investor cannot redeem the funds during this time period. After three years, you can redeem the funds that you have invested in the scheme but if you wish to keep the scheme intact and want to extend your investment, you are free to do so. ELSS offers the benefits of long-term capital appreciation and you stand to gain more if you invest in the open-ended mutual funds for a longer period of time.
Myth 2: ELSS is only fit for short-term investments
Fact: Many believe that ELSS should be capitalized after the 3-year lock-in period and is meant to serve this very period only. The truth is the longer one stays invested in the scheme, the more are the chances of getting higher returns. The open-ended mutual funds have the potential of offering good returns over a longer period and one can expect a return in the range of 10-12% if the investment period is extended to seven or ten years.
Myth 3: One can invest only 1.5 lakh in ELSS
Fact: ELSS is an open-ended mutual fund that qualifies for exemption from tax up to Rs. 1.5 lakh offered by the Income Tax Act under Section 80C. So, it lets you reduce your taxable income by up to Rs. 1.5 lakh but this does not mean that you can or should invest only Rs. 1.5 lakh in this scheme. You can invest an even higher amount and get higher returns. The minimum amount that needs to be invested in ELSS is Rs. 500 and there is no cap on the upper limit. Also, the returns as well as the dividends received from ELSS are tax-free.
Myth 4: It is mandatory to have a demat or trading account to invest in ELSS
Fact: Many people think that a demat or trading account is necessary to invest in ELSS as the funds one invests in ELSS are further invested in stocks. This is completely false. One can invest in ELSS even without having demat account. The money you invest in ELSS are managed by fund managers and all you need to possess is a bank account in order to invest in ELSS. You can directly invest on your own through the website of the company selling ELSSs or pick an intermediary or an online distributor of mutual funds to make the investment. Many banks (private as well as public) also give the option to open an ELSS account. However, in all the cases you need to fill a KYC (Know Your Customer) form but it is a one-time formality.
Myth 5: ELSS is complicated and cannot be understood by common man
Fact: ELSS is equity linked market scheme or open-ended mutual funds under which the funds are invested in a diversified portfolio. The fund managers are there to take care of the portfolio and thus, you do not need to worry about the economics and market-related risks. As for selecting an ELSS product, you can rely on a distributor in case you do not have the time to read and research. Otherwise, the terms and conditions are quite easy to understand and you can comprehend everything just by going through the brochures.
It goes without saying that ELSS is a smart investment scheme that not just helps you save on tax but also creates wealth. It is the best investment bet in the current times and if you have been taking a step back due to the myths around this scheme then it is time to discard all the fears and apprehensions. The facts are here to paint the real picture and it is every bit promising.
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