ELSS or equity-linked saving scheme is a kind of tax-saving investment plan that offers amazing features and advantages. However, there are certain things that you need to know about the ELSS scheme before you invest in it.
Here, we have discussed such lesser-known facts that will help you understand the scheme better.
ELSS lock-in period
Every investment has a lock-in period during which no investor is allowed to redeem or sell the stocks or the funds. Similarly, for the ELSS, there is a lock-in period. Here, you cannot redeem or further proceed with the funds till three years from the date of opening the ELSS account and making the investment. Unlike the 15 years lock-in period for the PPF investments, you have only three years, which helps you withdraw funds or make any changes according to your convenience.
The ELSS mutual funds are associated with some risks, just like any other kind of investment. Since you aren’t fully aware of them, we have discussed some of the risks for you to help you understand if you are planning to invest in the ELSS funds.
- Liquidity risks
The liquidity risk refers to the loss of funds from the investment at the time of redeeming them. In the case of ELSS, you might suffer from liquidity risk if you try to redeem the investment within the lock-in period of three years.
- Performance risks
Since every investment will have a fund manager, the performance risks are very common. This is a kind of risk associated with the manager's performance and the lack of his judgment and participation in maintaining the investments.
- Market risks
The investment market is volatile. If the market price falls below your bid price, you will have to redeem the funds at a lower price than what you have invested in. This is what market risk refers to.
- Equity risks
If the ELSS funds are exposed highly to the equity market, you will have to deal with several equity risks.
Options of fund investment type
As for the investment type, you will have three options:
- Growth: Here, the funds continue to grow till you redeem them or liquidating them.
- Dividend: In this plan, some part of your fund amount is given to the market if the price increases.
- Dividend reinvestment: Under this plan, the amount given back as per dividend rules is used to buy more funds.
Threshold of investments
The next thing you need to know about the ELSS funds India is the threshold of the investments you can make. Like every other investment plan, the ELSS has a threshold limit that you need to understand before investing.
Here we have discussed almost the basics of the ELSS scheme. All you have to do is know more about the features, benefits, and risks associated. Weigh them and decide whether these are a lucrative investment plan for you or not.