Skip to main content

ELSS to save on tax

How an equity-linked saving scheme works



An equity-linked saving scheme (ELSS) is an excellent avenue if you are looking at investing in the equity markets, and saving on tax. As the investments are locked in for a period of three years, the returns are also good in these schemes. Further, considering the tax advantages, the yield on investments is generally high.



ELSS is a type of diversified equity fund. Investing in ELSS is deductible under Section 80C of the Income Tax Act. ELSS is like any other equity fund. However, the lock-in period is three years. These funds come with all the usual trappings of an equity fund, which includes choice between dividend and growth options, and systematic investment plans.



The amount you plan to invest in an ELSS should be in multiples of Rs 500 with a minimum of Rs 500. The fund allots units to all complete applications, made in the specified form, not later than March 31 every year. Further, the plan should be open for a minimum period of three months. Investments in the plan will have to be kept for a minimum period of three years from the date of allotment of units. After the lock-in period of three years, you will have the option of tendering the units to the fund for repurchase. In case of death of the investor, the nominee or legal heir, will be able to withdraw the investment only after the completion of one year from the date of allotment of the units to the investor or anytime thereafter. The units issued under the plan can be transferred, assigned or pledged after three years of its issue.



Under the IT Act, investors investing in an ELSS can claim benefits under Section 80C. The limit under this Section is Rs 1 lakh. The dividends earned in an ELSS are tax-free. The returns on maturity are also tax-free.



The funds collected by the fund are invested in equities, cumulative convertible preference shares, fully convertible debentures and bonds of companies.

Investments may also be made in partly convertible debentures and bonds including those issued on rights basis subject to the condition that the non-convertible portion of the debentures so acquired will be disinvested within a period of 12 months. The fund needs to ensure that that the funds of the plan remain invested to the extent of at least 80 percent in securities as specified. The investments should be made within a period of six months from the date of closure of the plan in every year.



For short terms, the fund may invest the funds in short term money market instruments or other liquid instruments. After three years of the date of allotment of the units, the fund may hold up to 20 percent of net assets of the plan in short-term money market instruments and other liquid instruments to enable them to redeem investments of those unit holders who would seek to tender the units for repurchase.



The fund announces the repurchase price one year after the date of allotment of the units and thereafter on a half yearly basis. After a period of three years from the date of allotment of units, when the repurchase of units is to commence, the fund will announce a repurchase price every month or as frequently as may be decided by them.



To arrive at the repurchase price, the fund will take into account the unrealized appreciation in the value of investments made. While calculating the repurchase price, the fund may deduct such sums as are appropriate to meet management, selling and other expenses including realization of assets. Such sums should not exceed five percent per annum of the average net asset value of a plan. The repurchase of units will be at the repurchase price prevailing on the date the units are tendered for repurchase.



The investments made in any plan by an investor will be acknowledged by the fund through a certificate of investment or a statement of account. A plan operated by the fund would be terminated at the close of the tenth year from the year in which the allotment of units is made under the plan. If 90 percent or more of the units under any plan are repurchased before completion of 10 years, the fund may terminate that plan even before the stipulated period of 10 years and redeem the outstanding units at the final repurchase price to be fixed by them.

Popular posts from this blog

Inflation Indexed National Savings Securities - Tax Treatment

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Inflation Indexed Bond - Tax Treatment Tax treatment on interest and principal repayment would be as per the extant taxation provision. The quoting of Permanent Account Number (PAN) mandatory for investment amounting to `50,000 (Rupee fifty thousand) and more. However, following exemptions with regard to PAN requirement will apply: As per Income Tax Rule 114B, any person who does not have a PAN and who enters into any specified transaction shall make a declaration in Form No.60. As per Rule 114C, the requirement of PAN is not applicable to the person who has agriculture income and does not have any other income provided he makes a declaration in Form 61, non-residents as referred to in Section 2(30) of the Income Tax Act, and...

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

Strategy for loss making stock holding

Some tips for investors who are holding stocks that have eroded value in the recent corrections After a dream bull run over the last four years, the domestic markets are in the grip of a slowdown from the last six months. There have been a couple of pull back rallies but every rally is followed by a correction and the markets are falling to new lows in each correction phase. There is a lot of negative news flowing in from all ends and as a result the markets hit their lowest levels in 2008 recently. Currently, the market sentiments look quite bearish. Rallies in the markets are quite short lasting and most of them end in intraday or at the most in a couple of days. There are selling pressures at every level in the market. Many stocks have come down 40 to 60 percent from their peak levels. Stocks and sectors that led the market rally last year are the worst hit in this correction. For example, stocks in banking, financial services, power, energy and infrastructure have seen much deeper...

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now