Most of the investors always seek the opportunity to invest in a great investment plan from which they can generate more wealth, get a huge amount of regular returns as well as they can save taxes. While there are multifarious investment plans available in the market and the best thing about investment plans is all of them offer great returns that are taxed according to the Income Tax rules. But when it comes to the best investment plan, ELSS funds are always on the front seat. Equity Linked Savings Scheme or ELSS Funds are tax-saving equity mutual funds. Here we are going to explore ELSS Tax Saving Mutual Funds and dig into all the aspects that you need to know.
What is the ELSS Fund?
ELSS funds is an equity fund that invests a major portion of equity or equity-related elements. ELSS funds are known for the best tax saving schemes as they offer tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act.
In addition, the ELSS fund is an equity-oriented scheme which comes with a mandatory lock-in period of three years. The great thing about ELSS mutual funds is that there is no tax deduction after the lock-in period of three years. Over the last few years, most of the taxpayers have been switching to ELSS investment schemes to avail of tax benefits. Furthermore, the return that you get at the end of the three-year tenure of the lockin period of ELSS funds will be considered as Long Term Capital Gain (LTCG) and will be taxed at 10% (if the income is above Rs. 1 lakh).
Some Common ELSS Terms
Expense Ratio
The expense ratio is the amount of money that the fund management company charges an investor for managing the fund. When you will select an ELSS fund, you must check the expense ratio of the fund.
Past Performance
Before making the final decision for the best ELSS funds, you must know the fund’s historical performance as this will give you an idea of the fund’s future performance. Consistently performed funds are good options.
Age of the scheme
As we all know Mutual Funds depend upon the market conditions, so it’s better to choose older schemes. ELSS scheme that has a past performance record of around 5 to 10 years would have gone through various market phases that are generally considered better options than the other latest schemes.
Size of the corpus
Yes, bigger is better! First of all, you must know the corpus of the ELSS scheme you’re planning to invest in and compare the other schemes available in the market.
Source: Video from Mutual Fund Sahi Hai
Features Of ELSS Mutual Funds
- Tax exemption – You will get free from Tax if you have invested some portion of your income in ELSS funds under Section 80C of the Income Tax Act.
- No Maximum investment – There is a lock-in period of three years that means no maximum tenure of ELSS funds
- Equity Investment – A minimum of 80% of the total investible corpus is invested in equity and equity-related instruments.
- Diversification – The fund invests in equity in a diversified manner – across different market capitalizations, themes, and sectors.
- Tax rules – your income will be treated as LTCG and taxed as per the prevalent tax rules.
Who Should Invest in ELSS?
- ELSS offers an amazing opportunity for investors who don’t want to pay tax liability with high capital growth. If you are looking for equity investment avenues that will deliver good returns in the long run, you can go for it.
- Investors who have a high-risk appetite can invest in ELSS and a long term wealth creation goal.
- Investors who have a long-term investment goal i.e. more than three years can invest in ELSS. Because the fund has a minimum lock-in period of 3 years and this fixed lock-in period ensures that the investors remain invested.
- The investors who have already invested ₹1.5 lakh in various tax saving investment schemes under Section 80(C), he must choose other equity funds that don’t have any lock-in period.
Why Should You Invest in ELSS Tax Saving Mutual Funds?
ELSS Tax Saving Mutual Funds has a wide range of benefits including:
- SIPs– The best thing about tax saving ELSS funds is you can invest a lump sum amount. If we talk about investors, they always prefer the SIP method as it allows them to invest in small segments and avail tax benefits along with a great opportunity to generate wealth.
- Diversification– Most ELSS funds invest in a diverse group of companies ranging from small to large and across multifarious sectors. This great feature allows investors to add the element of diversification to your investment portfolio.
- Low minimum amount– There are a plethora of ELSS schemes that allow investors to invest with as low as Rs.500. This ensures that you can start investing in ELSS without having huge funds.
- Shortest Lock-in period – Equity Linked Savings Scheme (ELSS) has the shortest lock-in period of three years. you can exit ELSS funds by selling it after 3 years.
Factors To Consider Before Investing in ELSS Funds
► SIP
In order to get the benefit of tax exemption, many investors have been switched to ELSS funds. Hence, they commit the whole ELSS investment to the market. Just because they need to save taxes and lump sum amount of investment is the only choice. But it can be risky especially if you invest at a time when the market is high. Basically, the ELSS investments are long-term financial goals that start with a systematic investment plan (SIP) which can help you average your buying cost per unit.
↠ Investment + Tax Planning
ELSS funds are the only type of mutual fund which invests in the equity market as well as offers tax benefits. Most of the investors invest in ELSS funds just for saving their income from paying taxes. If you have the same purpose for investing in ELSS mutual funds, then there are several options available under Section 80C of the Income Tax Act. This investment plan will naturally include tax planning and also it can be used to achieve your long-term goals.
► Recommended Investment Horizon
When it comes to the majority of investors, they prefer ELSS funds to PPF or NSC just because of the short lock-in period of 3 years. Then Tax saving investment plan is a good strategy since equity investments are known to take around 5-7 years to stabilize.
How To Invest in ELSS Funds?
You can easily invest in ELSS online through online platforms (such as investmarket.in) offering the fund.
Step-1 Visit http://p.njw.bz/83041
Step-2 Enter your Full name, Email, and Phone no
Step-3 After submitting the information, A new form will appear:
Step-4 Now, enter other details:
Step-5 After filling in all the required details, your application will take a few seconds to process the information
Step-6 Once your information processed, select the method to get your KYC process completed.
Step-7 Now you need to enter your Adhaar information here:
List Of Top ELSS Funds 2020-2021
Here are top ELSS funds in which you can invest to save your tax as well as generate your wealth:
| Fund Name | Returns (%) | ||||
| 1 year | 3 year | 5 year | 7 year | 10 year | |
| Axis Long Term Equity | -0.44 | 6.29 | 8.82 | 17.25 | 14.02 |
| Mirae Asset Tax Saver | 10.12 | 7.52 | — | — | — |
| Invesco India Tax Plan | 5.82 | 5.83 | 8.76 | 15.52 | 11.21 |
| Aditya Birla Sun Life Tax Relief 96 | 4.31 | 2.28 | 8.01 | 15.31 | 9.78 |
| DSP Tax Saver | -0.62 | 2.70 | 8.93 | 14.68 | 10.29 |
| Kotak Tax Saver | 5.24 | 2.64 | 8.11 | 14.51 | 8.49 |
| ICICI Prudential Long Term Equity | 1.11 | 3.38 | 6.80 | 13.37 | 9.61 |
| Motilal Oswal Long Term Equity | -5.66 | 0.40 | 8.21 | — | — |
| Tata India Tax Savings | 0.76 | 2.68 | 8.63 | 14.53 | 10.92 |
| Nippon India Tax Saver | -10.37 | -9.16 | 0.65 | 11.32 | 7.25 |
Different Ways To Invest in ELSS Funds
This can be done either via a
► Mutual Fund distributor
↠ An online distributor
► Fund company
What is the Best Thing About ELSS Funds?
► Instant Investment
You can start investing in the best ELSS funds for as low as Rs. 5,000 (lump sum) and Rs. 500 for a monthly SIP (Systematic Investment Plan). Therefore, you do not have to wait to accumulate a large sum in order to start investing.
↠ Zero Commission
You can save tax with zero percent commission by investing in the ELSS mutual funds scheme. So you don’t need to worry about the extra charges while investing in ELSS mutual funds.
► Completely Paperless
Unlike the traditional offline method of investing in ELSS funds, now it’s very easy to invest in tax saving funds, you just need to create an account and it will be done by following very easy steps.