Things To Consider Before Investing In Top ELSS Funds

ELSS stands for Equity Linked Savings Program, and it is the only type of investment scheme offered by mutual funds that provide both opportunities for investment and reductions in taxable income. Top ELSS funds primarily put their money into equities and equity-linked assets, including listed shares, among other types of investments. There is no other mutual fund that qualifies for a tax credit; it is exclusive in that regard.

ELSS is associated with a risk

As an equity-oriented scheme, ELSS mutual funds must allocate at least 80% of their assets to equities and instruments related to equities in order to meet regulatory requirements. This also indicates that it consists of a strategy that entails a level of risk that is somewhere between fairly high and extremely high and that it leaves the money you invest open towards the vicissitudes of the market. Additionally, funds invested within the equities market are susceptible to market volatility, which implies that returns are never guaranteed under any circumstances. On the other hand, if you plan to hold onto your investments for a longer period of time, they will have a greater chance of being unaffected by the daily fluctuations in the market.

Options Both for Growth and for Dividend Payments

You, as just an investor, have the choice between growth choices and dividend options for your investments. In the second case, if you invest in an ELSS, you are eligible to receive regular income in the form of dividend payments for the number of years you choose to hold the investment. If you choose the growth option, you will not receive any dividend payments since those funds will be reinvested in the fund to purchase further units for you and to allow the capital to continue to grow. Whenever dividends are reinvested, it significantly improves the Net Asset Value (NAV) of the units, which in turn helps investors make more money, particularly when market conditions are favorable.

Take into consideration the locked-in time frame

Because top ELSS funds are required to have a lock-in time of three years, investors are prevented from withdrawing their money from the fund well before the maturity date. Now, you can make nice returns during this time; however, if you want to collect bigger returns, you must remain involved for just a long term, preferably somewhere around 5 and 7 years.

Therefore, you should only invest in top ELSS funds if you are able to make a commitment for the long term and, therefore, can successfully manage your liquidity requirements in light of this.

Funds invested in ELSS that are subject to taxation

The taxation of monies held in ELSS accounts was a relatively uncomplicated process prior to the budget for the year 2018. Along with any long-term capital gains, the investors did not have to pay taxes on any dividends or other income they received. However, following a revision inside the budget of 2018, dividends nowadays are taxable in the hands of investors, as well as any long-term capital gain that is greater than Rs. 1,000,000 is subject to taxation at a rate of 10% without the advantage of indexation. When contemplating the purchase of any top ELSS fund, investors are obligated to take into account the potential tax repercussions as well as how those repercussions would affect the fund’s net returns.

Equity exposure

Equity exposure can be sufficiently obtained through the use of top ELSS Funds. You will benefit financially as a result of this, as your gains would be increased. In addition to this, it stops you from making hasty decisions regarding the sale of your products.


Those individuals who are interested in lowering their tax burden and improving their chances of earning an additional income should consider making an investment in an ELSS at any point in time. Investors try their best to cut their tax burden by participating in a variety of tax avoidance strategies throughout tax season, but most of them are unable to decide which strategy is best.