Investing in ELSS

Equity Linked Saving Scheme ( ELSS) is just a normal Mutual fund with few exception :

Pros:

• Any investment in ELSS can be used to claim deduction under sec 80C upto a limit of Rs. One Lakh
• Any investment in ELSS is locked for a period of 3 years . you cannot even pledge these MF unit during the lock-in period
• If any good ELSS declares dividend and you would like to invest , go ahead as do so , as ELSS is the only type of MF in which any dividend makes sense . Because you would still get to claim deduction on the entire amount you invested , though you got back a part of the investment as dividend

I do not think there is any other difference , between a normal MF and an ELSS .

Cons

• ELSS is not being recognised for deduction in the DTC ( new tax law ) that will be in force from April 2012, so in case you intend to invest in ELSS through a SIP make sure that the SIP end before April 2012
• Never opt for the Dividend Re- Invest option . In case of ELSS ,as in case of dividend Re-Invest your dividend would be used to buy more units of ELSS , but the problem with this is , these newly bought units would be again locked for 3 years from date of purchase

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