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Equity Linked Saving Scheme (ELSS) stands out as a favored mutual fund, offering tax benefits that empower investors to claim Tax deductions of up to Rs. 1.5 lakhon their investments. This tax saver funds,like others in its category, entails a mandatory lock-in period of three years.

The significance of this three-year lock-in period for ELSS cannot be overstated, rendering it unique among various mutual fund options. This singular feature brings several advantages for investors, making ELSS a noteworthy choice in the financial landscape.

Encourages Patience

The enforced lock-in period serves as a catalyst for cultivating a long-term investment perspective. Investors are prompted to adopt patience, staying committed to their investments for a significant period. This patient approach has the potential to yield higher returns over time.

Tax Benefits

One of the most appealing aspects of ELSS funds lies in their tax-saving benefits under Section 80C of the Income Tax Act. Investments up to Rs. 1.5 lakh in ELSS funds qualify for a deduction. However, any excess investment beyond this limit does not qualify for deduction. It's crucial to note that gains above Rs. 1 lakh upon redemption post the lock-in period attract a long-term capital gains tax at a rate of 10%.

Creates Wealth

ELSS funds, rooted in equity investments, exhibit a historical tendency to perform favorably over the long term. By committing to the lock-in period, investors position themselves for wealth creation as equity has the potential to deliver robust returns over an extended horizon.

Skirts Volatility

The lock-in period acts as a shield againstimpulsive trading decisions triggered by short-term market fluctuations. It promotes a disciplined investment approach, dissuading investors from frequent buying and selling of fund units. This stability is a key factor in navigating the often unpredictable landscape of financial markets.

During the lock-in period, investors should be vigilant and adopt certain measures to mitigate potential risks associated with ELSS funds. Ensuring fund liquidity, allocating funds for emergencies before entering the lock-in period, embracing Systematic Investment Plans (SIPs) for effective investment, and closely tracking performance are crucial steps for safeguarding investments.

“It's noteworthy that switching between different schemes within the same fund or opting for dividend reinvestment does not impact the lock-in period. The three-year lock-in remains applicable to the initial investment.”

Once the 3 Year lock-in period concludesfor a specific installment or lump sum investment, ELSS transforms. It evolves into a fully liquid and open-ended equity-oriented investment scheme, providing investors with flexibility and freedom. This transition marks the completion of the lock-in period, unlocking the potential for investors to make informed decisions about their holdings.