{"id":3101,"date":"2023-07-07T13:05:34","date_gmt":"2023-07-07T07:35:34","guid":{"rendered":"https:\/\/jupiter.money\/blog\/?p=3101"},"modified":"2023-07-07T13:05:34","modified_gmt":"2023-07-07T07:35:34","slug":"elss-vs-mutual-funds","status":"publish","type":"post","link":"https:\/\/jupiter.money\/blog\/elss-vs-mutual-funds\/","title":{"rendered":"ELSS vs Mutual Funds: Difference Between ELSS and Mutual Fund"},"content":{"rendered":"

Mutual funds<\/a> are marketable securities that pool money from investors and invest in different asset classes. ELSS or Equity Linked Savings Schemes<\/a> are equity mutual funds that invest a majority of the assets in equities. Both mutual funds and ELSS operate in the same way. However, there is one major difference between mutual funds and ELSS. <\/span><\/p>\n

Read our article “ELSS vs Mutual Funds<\/strong>” to find out how ELSS is different from mutual funds and which one is a better choice.<\/span><\/p>\n

What Are Mutual Funds?<\/span><\/h2>\n

A mutual fund is a financial instrument that pools money from investors and invests in different securities such as stocks, bonds, government securities, commodities, money market instruments and other assets. A fund manager manages a mutual fund and is responsible for investing the investor\u2019s money in different securities based on the fund\u2019s objective. The fund manager does thorough market research and selects the securities for the fund, and also revises the portfolio based on the market conditions. For managing the mutual fund, the fund manager charges a small fee called expense ratio which is deducted from the profits of the fund.<\/span><\/p>\n

Since mutual funds invest in a bunch of securities, it gives small investors access to diverse securities at a minimum investment. Each investor will get units of the mutual funds based on their investment. Each unit is valued equally and is calculated by dividing the total assets by the total number of units. This value is also known as net asset value (NAV)<\/a>. The NAV of the fund goes up when the mutual fund makes a profit, and it goes down when it makes a loss.<\/span><\/p>\n

There are several types of mutual funds in the market based on the underlying asset classes, namely, equity mutual funds, debt mutual funds<\/a>, and hybrid mutual funds. Equity mutual funds invest the majority of the assets in shares of different companies. They have a very high potential to give good returns in the long term. However, they are also the riskiest category of mutual funds. Debt mutual funds invest most of their assets in debt securities such as bonds and debentures. They are the least risky category and often give predictable returns to investors in the short term. However, their returns are lower than equity funds.<\/span><\/p>\n

What Is ELSS?<\/span><\/h2>\n

Equity Linked Saving Schemes (ELSS) funds are equity mutual funds that invest at least 60% of their assets in shares. Hence, they are considered a risky investment. However, they can help accumulate wealth in the long run. The primary advantage of investing in ELSS is that the investment qualifies for tax deduction under Section 80C<\/a> of the Income Tax Act, 1961. You can claim a deduction of up to Rs 1.5 lakhs under Section 80C. This is the major difference between ELSS and other categories of mutual funds.<\/span><\/p>\n

ELSS funds come with a lock-in period of three years, so you can\u2019t redeem your investment until the three-year period ends. In case you are doing a SIP (Systematic Investment Plan), each instalment is considered a separate investment and has to complete three years for you to redeem it.<\/span><\/p>\n

ELSS funds offer the dual advantages of tax saving and capital appreciation. Investors looking to save tax and invest can consider these funds. Since these funds are pure equity funds, you must be careful before investing in them. You must have a high-risk tolerance and a long-term horizon to invest in ELSS funds. Moreover, you must align your goals with the fund’s investment objective to find the best fund that will suit your requirements.\u00a0\u00a0<\/span><\/p>\n

Similarities Between ELSS and mutual funds<\/span><\/h2>\n

Before understanding the differences between ELSS and mutual funds, let\u2019s see the similarities between the two.<\/span><\/p>\n