An Equity Linked Savings Scheme (ELSS fund) is a type of equity mutual fund, which invest a major portion of their corpus into equity or equity-related instruments. ELSS funds are also known as tax saving funds since they offer tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act. However, an ELSS is said to be not suitable for risk-averse investors.
Key Features of ELSS Fund
Given below are the key features of ELSS:
- ELSS is the only mutual fund that invests in the equity market and offers tax benefits.
- About 80% of the fund’s investment is in equity or equity associated instruments, and the investment is made in a diversified manner (such as in different economic sectors).
- By investing in ELSS, the investor can obtain a tax exemption of the invested amount up to a limit of Rs. 1, 50,000 according to Sec 80C of The Income Tax Act, 1961.
- Also, in ELSS, the income that the investor earns at the end of the mandatory three-year lock-in period will be considered as Long-Term Capital Gain (LTCG) and if this income obtained after the investment is above Rs.1, 00,000 then it will be taxed at 10%.
- There is no maximum term for the ELSS. However, there is a compulsory three year lock-in period.
Main Benefits or Advantages of ELSS Fund
The most important benefit of ELSS is that it is a tax saving scheme. However, there are also other benefits. They are:
- ELSS offers higher returns than other tax saving instruments.
- The initial investment amount is very low, for example, say Rs.500.
- The investment in ELSS helps in diversification i.e. the fund amount will be distributed in a diversified manner across different companies (large-cap, mid-cap, and small-cap) and in different economic sectors.
- ELSS has the lowest lock-in period (three years) among all other tax saving options. Also, if the investor wishes, he/she can redeem the ELSS after three years.
- Apart from lump-sum investment, ELSS investment can also be made as SIP (Systematic Investment Plan). Using the SIP method, the investor needs to invest only small amounts at regular intervals.
BEST ELSS FUNDS IN INDIA
Here are some of the best performing ELSS funds available in India:
- Aditya Birla Sun Life Tax Relief 96
- Axis Long-Term Equity Fund
- Tata India Tax Savings Fund
- DSP BlackRock Tax Saver Fund
- Nippon India Tax Saver Fund
- ICICI Prudential Long-Term Equity Fund
*The order of funds mentioned above doesn’t suggest any recommendations. Investors may choose the funds as per their goals and risk capacity. Returns are subject to market risks.
