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How is ELSS Different From Other Mutual Fund Schemes?

For a newbie who wants to get a taste of equity markets in order to attain his/her financial goal, ELSS is the perfect way to start. Why? Because unlike other mutual fund schemes, ELSS which comes with the shortest lock-in period of three years, not only increases your chances of making some extra income, but it also helps save taxes.That’s not it. There are other factors involved too that distinguishes ELSS from other mutual fund schemes like debt funds, balanced funds, etc.

So how exactly is ELSS different from other mutual fund schemes? We’ll get to that.

But first things first.

What is ELSS?

Equity Linked Saving Scheme or ELSS is a tax saving mutual fund scheme that allows investors to claim tax benefits worth Rs. 46,800 with an investment of up to Rs. 1.5 lakh as per Section 80C of Indian Income Tax Act of 1961. ELSS invests in equity markets, making it a high risk scheme. That is why the interest rate offered by ELSS is higher as compared to other tax saving investment instruments.

But what is a mutual fund?

Mutual fund accumulates money from its subscribers and invests that surplus cash in a pool of funds and invests in various securities like stock market and money market instruments like bonds and deposits. The risk factor here depends on which asset classes your money is invested. Various assets are made for various type of investments. For example, equity is optimum for long term-investment, debt market is apt for medium-term investment and money market instruments are best for short-term investments.

So where is the difference?

Well, ELSS invests a major chunk of your investment in equity markets whereas mutual fund scheme invests a variety of assets. Also, ELSS comes with a three year lock-in period that gives your investment a chance to grow over a longer period of time. You cannot withdraw your ELSS funds for at least three years, which is not the case with other mutual funds as they do not have a lock in period.Also, another factor that sets ELSS apart from its other mutual fund counterparts is its tax saving benefit. Under section 80C, ELSS investor can claim tax benefits worth Rs 46,800 with an annual investment of up to Rs. 1.5 lakh. Other mutual fund schemes do not have any tax saving benefits.

Now that you are aware of how ELSS is different from other mutual funds, planning on some ELSS investment? If so, one of the best ELSS scheme currently available in the market is Axis Long Term Equity Growth. So if you want to increase your chances of fetching a decent amount of returns from an ELSS investment and save tax at the same time, you should consider investing in Long Term Equity Growth fund scheme