ELSS (Equity Linked Saving Scheme) is a type of mutual funds tax saving investment scheme. In simple words, your money is invested by the asset management company (AMU) in equity, debt market, etc.
ELSS vs. Mutual Funds
The difference between ELSS and other mutual funds is that an ELSS comes with a lock-in period of 3 years; that is, you cannot withdraw your investment before three years. You can invest up to Rs 1.5 per year.
Tax Benefit: You get the benefit of tax deduction under Section 80 (c) of the IT Act. The ELSS investments help you save tax, and your returns are also tax-free.
- Under Section 80C, a tax deduction of up to Rs 1.5 lakh can be claimed for any investment in ELSS funds.
- The lock-in period is shorter than the Public Provident Fund (PPF), National Savings Scheme (NSC) and bank deposits.
- Depending on the market movement, the returns may be higher than other means of investment. Over the past five years, the best performing ELSS funds have supported CAGR by about 20 percent. Therefore, ELSS funds can appreciate higher capital in the long term.
- There is no long-term capital tax on ELSS funds, which makes your returns tax-free.
- The fund is not correlated with a fixed maturity period. You can stay involved for as long as you want.
- Even during the lock-in period, shareholders are entitled to enjoy dividends and tax rebates.
- The ELSS funds are riskier than other investment instruments such as PPF and bank deposits.
- Premature withdrawals are not allowed, so it is not a liquid investment for three years.
In 30/35 years, you can take some risk and go for a higher return on your investment. ELSS is a tax saving instrument that offers high returns but comes with a higher risk due to exposure in the equity market.
You can get a tax deduction of up to Rs 1.2 lakh per year by investing Rs 10 K per month. But keep in mind; you will be able to redeem this investment only after three years.
According to CRISIL score in December 2016, DSP BlackRock Tax Saver Fund, Tata India Tax Saving Fund, etc. are some of the best performing ELSS funds. Returns on the ELSS funds can range from 14% to 20%.
Among the best performing ELSS funds, there are several options. Some of these are Reliance Tax Saver Fund, Axis Long Term Equity Fund, Birla Sun Life Tax Relief 96 Fund, Franklin India Tax Shield, etc.
From the review of the top ELSS mutual funds, you can see the best performing ELSS funds.
The best mutual fund will depend on your goals. It also depends on the risk you want to take and the return you want.
When you invest in a good ELSS fund and achieve your goals, then it is wise to invest 10k in ELSS