ELSS- Tax saving Mutual fund

Hard-working professionals and businessmen are always on the lookout for the best tax saving investments to derive maximum benefits from their investments. Equity Linked Saving Scheme is the type of mutual fund which is eligible for the tax deductions u/s 80C of the Income Tax Act, 1961. Under this tax saver investment, investors can claim a tax rebate of up to ₹1,50,000 and save taxes up to ₹46,800 per year.

ELSS mutual funds asset allocation includes investment in the equity and equity-linked securities i.e. listed shares. The portfolio can also include exposure to fixed income securities too. ELSS fund comes with the 3 year lock-in period which is the shortest amongst all other tax-saving schemes under 80C investments.

Investing in tax saving mutual funds not just reduces your tax liability but also help you meet various personal financial goals in your life.

Features of the Equity Linked Saving Scheme fund:

  • Tax deduction upto ₹1, 50,000/ year under section 80C.
  • 3 years Lock-in period
  • No upper limit to invest in ELSS
  • Only tax saving fund with the inflation-potential returns
  • ELSS investment has two benefits- Tax saving and wealth growth
  • ELSS fund portfolio consists of equities and fixed income securities.

Why ELSS fund is best tax-saving investment under Income Act, 1961?

There are many tax-saving instruments for the investors- PPF, FD, & NSC to name a few popular. The only setback with these schemes is- restricted returns. Here, the ELSS fund is different. The returns on the ELSS are higher even when the markets are trending on the bullish. Post-tax returns, ELSS mutual fund is much attractive than the other tax-saving schemes.

Factors to consider while investing in ELSS fund:

Before investing in ELSS fund it is important to consider the following factors:

  • Investment goal: To invest in an ELSS mutual fund it is important to have an investment of more than 5 years. This is to mitigate the market volatility from the equity exposure in ELSS mutual funds.
  • Safety: Investments in ELSS are subject to price risk in the stock markets.
  • Liquidity: The ELSS fund comes with three year lock-in period. From the date of investment, the invested funds are locked in for three years and the holdings can be redeemed post completion of the lock-in period. Even in case of investor death, nominee has also to wait for redemption till completion of 3 years. At the end of three years you may choose to continue to hold the investment or redeem.
  • Returns: Instant tax rebate of 30% is the biggest return. There is no guaranteed returns from the ELSS fund investment because the investment is dependent upon the performance of the securities. Though investing in ELSS for more than 5 years assure good returns compare to other tax saver fund.

SIP or Lumpsum? Which mode to prefer to invest in the ELSS fund?

For the investors who are willing to begin investing in ELSS with minimal or zero risks, it is advisable to invest through SIP. This tax-saving SIP provides the investor an opportunity to invest in the fund across the business model. To invest in ELSS fund through Lumpsum is advisable to those investors who are willing to take the risk and have long-term investment goals i.e. more than 5-7 years.

Regulatory Oversight

Securities and Exchange Board of India (SEBI) is the authority that regulates the framework of ELSS Mutual Fund functioning. There is no guarantee on returns but SEBI ensures that the investments are made as per rules.

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Just for information

Section 80C of Income tax act permits this deduction, there are other classes of investments also under this section, namely LIC Premium, PPF,etc , If you have investment in other products e.g. You are regularly paying LIC premium then your investment in ELSS will be exempt to a reduced extent

Frequently Asked Questions- ELSS

To start investing in ELSS it is important to complete the KYC process. For the KYC process investor has to submit their photo, address proof, and PAN. To complete the KYC verification investor can contact the authorized KRA. Once the KYC is complete and successful, an investor can then begin investing in the ELSS fund. Click here to open an online investment account.

Compare to other tax-saving instruments such as NPS, FD, etc. ELSS funds have better benefits. It has a minimum lock-in period and higher returns when invested for longer period.

ELSS funds work best for salaried individuals. It is because not only they get benefitted from higher returns but also the tax benefits under section 80C of the Income Tax Act.

ELSS funds do not contain any exit load. To know more about it, the investor should go through the scheme-related documents before investing.

No investor can withdraw from the ELSS investment within 3 year’s lock-in period. Also, there are no provisions to pay the penalty and withdraw the units during the three-year lock-in period.

There’s no upper limit to invest in an ELSS mutual fund. Although the tax benefits that the ELSS fund offer is limited up to ₹1,50,000 per year.