Equity Linked Savings Scheme (ELSS) 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. Here are some lesser known facts about ELSS mutual funds based on two Fin Min Gazette notifications (linked below). I could not locate any recent notification on this, so I assume the rules have not changed. Please correct me, if I am wrong.
ELSS fund rules are stipulated by finance ministry and not SEBI.
1. Minimum investment is Rs. 500 and any investment has to be in multiple of Rs. 500. All my ELSS investments were this way, but I did not realise that this was a rule!
2. ELSS funds only need be open for subscription for 3 months in any FY. They can close after that. We have both closed-ended and open-ended ELSS schemes.
3. 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 share . Arbitrage is not allowed.
5. ELSS funds should remain invested in 80% equity and convertible bonds at all times. 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.
6. Each AMC is allowed to have one open-ended ELSS fund with SEBI approval. Birla has three! Edelweiss and L&T two each! An AMC can have any number of closed-ended ELSS funds!
Chennai DIY Investor Workshop Jan 29th 2017
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