Making the most of ELSS investment

The Equity-Linked Savings Scheme (ELSS) of mutual funds is one of the most popular tax saving investment options for the taxpayers. ELSS comes with a lock-in period of three years and there is no limit to investing in these schemes, but the benefit of tax exemption will be available for investments subject to the maximum limit of Rs. 1.50 lakh under Section 80C of the Income Tax Act. Apart from tax saving, investment in ELSS has the potential to provide high returns to the investor.

Investments in ELSS can be made through SIP or through lump sum payment. Buying ELSS through the SIP mode makes it convenient for the taxpayer to invest in a staggered manner and plan his tax outgo well in advance. The advantage of rupee cost averaging also kicks in when an investor invests in ELSS through SIP.

Investors can also invest in the same ELSS scheme every year if the performance of the scheme is excellent. All fresh investments in the same ELSS every year will be eligible for tax deduction, subject to the maximum limit of Rs. 1.50 lakh.

After the mandatory lock-in period of 3 years, investors can redeem the units and get the maturity amount. They can reinvest this maturity amount in the same or another ELSS scheme and claim tax deduction for the reinvested amount under Section 80C. This three-year investment cycle can be repeated every year and tax deduction can be availed on the amount reinvested without making any fresh investment! However, if the scheme is doing extremely well, investors may choose not to redeem and continue with the scheme till such time as they deem fit.