Hello Everyone.. Today I am going to tell you all some important thing about ELSS....
What is the meaning of ELSS?
ELSS stands for Equity Linked Savings Scheme. These are tax­-saving mutual funds that you can use to save income tax of up to Rs 1.5 lakh under Section 80C. ELSS funds have a lock­-in period of 3 years and invest a majority of their portfolio in the stock market.

What are the tax benefits of ELSS funds?
Investments of up to Rs 1.5 lakh in ELSS funds earn a tax rebate under Section 80C every year. The returns generated on the investments are also tax­-free in the hands of the investor after completion of the 3­ year lock­-in period. In case of SIP investments, redemptions can be done on a first­-in­-first­-out basis since each individual SIP has a lock­-in of 3 years.
What is the ELSS investment tenure?
ELSS funds have a lock­-in of 3 years. But you can stay invested in them, with or without further contributions, for as long as you want. You can also stop an ELSS SIP at any point, but the invested amount can be withdrawn only after 3 years.
Who can invest in ELSS funds?
Individuals as well as HUFs can invest in tax­-saving mutual funds. At present, most mutual fund companies do not accept investments from NRIs who are US and Canadian citizens. NRIs living in other countries can invest in ELSS funds.
Are ELSS funds risky?
ELSS funds don’t guarantee returns because they earn from investments in the equity market.However, the best­ performing funds have displayed the capability of generating inflation­ beating returns over the long­-term. This is something that fixed income tax­ saving investments like PPF and FDs cannot do.
Can I withdraw from ELSS funds?
ELSS funds do not allow premature redemptions before completion of the 3­ year lock­-in period.
What is the ELSS investment limit?
An ELSS investment can be started with a minimum amount of Rs 500. There is no upper limit on how much you can invest in ELSS funds, but tax-saving can be availed on only a maximum of Rs 1.5 lakh a year.
Anything else I should know?
ELSS funds have two plan options: growth and dividend. The growth option is the recommended plan for long­-term wealth creation. Under the dividend option, the investor can choose between dividend payout or dividend reinvestment. The dividend received will not be taxable. If you choose dividend reinvestment, it will be treated as a fresh investment and you can claim tax benefit on it as well.
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Systematic Withdrawal Plan (SWP): Stream Regular Income From Your Investments
A lot is being spoken about how to ensure a monthly income post retirement. Have you heard about Systematic Withdrawal Plan in this regards? Not just retirement, at any phase of your life, if you wish to automate regular withdrawals from your mutual fund investments, then Systematic Withdrawal Plan can be your preferable solution because it is tax efficient, offers some independence from market instability and also helps in avoiding market timing.

What is Systematic Withdrawal Plan (SWP)?
Systematic Withdrawal Plan is linked to mutual fund investments. It is just the opposite of the much popular concept SIP, also known as Systematic Investment Plan. In SIP, instead of lump sum investment, investors invest small & fixed amounts on a regular basis, similarly in SWP, instead of lump sum withdrawal, fixed amounts can be withdrawn at regular intervals.
How Systematic Withdrawal Plan (SWP) Works?
Suppose you have 10,000 units of a mutual fund schemes, where NAV per unit is Rs 20. This means the total cost of your units is Rs. 2 Lakh. On lump sum withdrawal, you will get Rs. 2 Lakhs only but if you opt the SWP way then there are chances of getting more benefits. How?
Through SWP, you will withdraw a fixed amount (say Rs. 5000) on a regular basis (say on a monthly basis). This month if the NAV is Rs. 20, then for withdrawing Rs. 5000, your 250 units will get used (Rs 5000 / Rs 20 NAV= 250 units). Your balance units are 9,750 worth Rs. 1,95,000 @ Rs. 20 NAV.
Now, suppose next month the NAV per unit turns out to be Rs. 20.15, then for withdrawing Rs. 5000, you have to utilize 248.14 units (Rs 5000/Rs 20.15 NAV= 248.14 units). Thus, your balance units are 9,502.86 worth Rs. 1,91,462 @ Rs. 20.15 NAV.
If you observe here, you have withdrawn Rs 10000 from your total investment of Rs. 2 Lakhs, so the balance amount should be Rs. 1,90,000. But because you took the SWP route, your balance amount is Rs. 1,91, 462. Thus, you gained Rs. 1,462 in 2 months.
Top Features of Systematic Withdrawal Plan
- Fixed amount gets credited to the investors' account monthly/quarterly/half yearly
- Remaining amount can be withdrawn anytime
- Tax efficient returns in comparison of FDs/Bonds
- Withdrawal amount can be increased by investing more in the same SWP scheme
- SWP can be stopped or shifted to another scheme
- SWP can be started from immediate next month of investment.
Why SWP is a Tax-Efficient Way in Comparison to Traditional Debt Products like Bonds/FDs?
Traditionally, debt funds with dividend option were the preferable products to stream a regular income from investments, but these are not tax-efficient because all the dividends attract dividend distribution tax (DDT) at the rate of approximately 28%. Dividend distribution tax (DDT) is applicable on all non-equity funds and it includes income funds, monthly income plans, gilt funds, ultra short-term funds, etc.
In comparison to this tax liability, Mutual Funds' Monthly income plan with SWP is a better and tax efficient solution because the actual tax liability of these withdrawals are much lower if the units are held for more than a year. Because in such a situation, the withdrawals are treated as long-term capital gain and thus taxed at preferential rates (10.3% without indexation, or 20.6% with indexation).
A simple example will give you a better understanding.
Let's assume two investors - A and B. Investor A invests Rs. 15,00,000 in mutual funds' monthly Income Plan with SWP and Investor B invests Rs. 15,00,000 in Bonds/FDs. Both the investors are in 30% income tax bracket.
Mr. A is withdrawing through SWP from his Mutual Funds at 8% p.a rate and Mr. B is getting 8% returns per annum on his Bond/FD investments done for 10 years. For both, their monthly income works out to Rs. 10,000 p.m. Here is the illustration of their tax liability.

MIP SWP Plan
In this case, Mr. A would pay only Rs. 37, 535 as tax under capital gains while Mr. B will have to pay Rs, 3,60,000as tax on interest income.
Mutual funds are subject to market risks. The example is for illustration only and the calculations don't include any surcharge or income tax exemptions and assume that funds are not taken out even after 10 years.
SWP option is useful for retirees, businessmen/professionals, housewives, students studying abroad and rest all who wish to stream a monthly income from their investments in a tax efficient way. SWP option is available in most of the mutual Fund schemes, but investors should choose one that suits their risk appetite.

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How SIP is a Better Route for Mutual Fund Investment ?
Mutual funds investments have helped many in creating wealth. Using this financial tool, investors with long term goals have built corpus for their financial aspirations such as retirement, children higher eduction & wedding and others.
However, there are still many, who don't have proper clarity about mutual funds, especially risk averse investors. Such investors can take up the Systematic Investment Plan (SIP) route of MF investment. This blog explains how SIP is a better way of MF investment.

Good Things About SIP
No Need to Time The Market: It is believed by majority that to benefit from mutual funds, one needs to have proper knowledge about market timings, like when to invest and when to withdraw.
This is where SIP stands as the better and convenient route of MF investment. EVERY TIME IS THE GOOD TIME TO INVEST THROUGH SIP.

 You need not to time the market. Simply, keep investing regularly (preferrably on monthly basis) irrespective of the market high or low.
No Need of Lump-sum Money for Investing: Through SIP you can invest as minimum as RS. 500. There is no need of having a lump-sum amount. Just like a recurring deposit, you need to make a monthly investment of a fixed amount of your choice. You can do that simply by giving post-dated cheque or by opting for auto-debit from your bank account.
You Can start Early: For investing in SIP, you don't need to wait till you accumulate a lump-sum amount. You can start a SIP from your early years of earnings. At the age of 25, if you start an SIP of only Rs 2000/month, you can expect to get approximately Rs 59.3 Lakhs when you will turn 60.
* Rs 59.3 Lakhs calculated at 15% rate of return and adjusted against 6% inflation rate.
You Become a Disciplined Investor: The habit of saving doesn't come easy to all. SIP is effective in making you a regular and disciplined investor.
SIP: Three Things You Must Consider
Be Committed to Investing: In SIP, you don't need to time the market but only important factor here is your commitment. You must stick to your investment schedule and shouldn't get bothered by the market rise or fall.
Invest for Longer Period: SIP is benefiting, only if you are investing for at least 3 to 5 years. Longer is your investment period, better will be your returns. The smart way is to link SIP with your long term financial aspirations like retirement, daughter's wedding, children higher education and keep investing for 10 to 15 years.
Select the Right Fund to Invest: Selection of the right fund plan is also important. There are fund plans that are giving 18%to 20% rate of return but only when the investment period is long. There are variety of mutual fund plans to choose form. Taking the advice of a financial advisor, you can learn more about these funds and understand which is the right type of fund to invest.

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