Last Updated on
Equity Linked Savings Scheme (ELSS) or tax-saving funds refers to a class of mutual funds in which an investment up to Rs. 1.5 Lakh a financial year can be used for reducing our taxable income. In exchange, each unit is locked for three years. Here are some other lesser-known facts about ELSS mutual funds (the references are given below).
Before we begin, you can now watch for free the first lecture of the goal-based portfolio management lecture series. The contents of the course and FAQ can also be found there.
1. The finance ministry and not SEBI stipulate ELSS fund rules
Unlike all other mutual funds, where and how an ELSS fund can invest its money, is decided by the finance ministry and not SEBI For example, the minimum investment is Rs. 500 and any investment has to be in multiples of Rs. 500. This minimum investment amount (non-SIP) in other fund is typically higher.
2. ELSS funds only need to be open for subscription for three months in any FY.
This means they can close after that! This also means we can have both closed-ended and open-ended ELSS schemes.
3. Upon the death of the unitholder, nominees cannot get the money immediately!
If the unitholder dies, the nominee or heir shall obtain the units or corresponding value only after one year from the date of allotment of each unit. If the unitholder is running a SIP and the nominee does not inform the AMC to stop it, this rule would still apply!
4. ELSS funds can only invest in equities and bonds that are convertible to shares. Arbitrage is not allowed.
5. At all times, 80% of an ELSS fund’s portfolio should be direct Indian Equity.
It can hold 20% in cash or money market instruments to handle redemptions. The 80% equity can be managed as per the wishes of the AMC. They can be large-cap, multi-cap or mid-cap funds. Most funds are typically large-cap oriented. See for example Mirae Asset Tax Saver Fund vs Axis Long Term Equity Fund
6. Only one open-ended ELSS fund with SEBI approval is allowed per AMC.
Although this rule was in existence since the launch of ELSS funds, before the SEBI categorisation rules, Birla AMC has three ELSS funds! Edelweiss and L&T two each from acquisitions! An AMC can have any number of closed-ended ELSS funds!
References
GOI Gazette notifications 3rd Nov 2005 and 13th Dec 2005.
More ELSS fund related articles
Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author
M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin
Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner
Your Ultimate Guide to Travel
This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "FU" to your employer (Google Play Store)
