Wednesday, 6 December 2017

All about ELSS | Equity Linked Savings Scheme | Tax Saving Mutual Funds

All about ELSS | Equity Linked Savings Scheme | Tax Saving Mutual Funds

All about ELSS | Equity Linked Savings Scheme | Tax Saving Mutual Funds



What is ELSS (Equity Linked Savings Scheme)?

ELSS is a type of diversified equity mutual fund where most of the corpus is invested in equity and equity-related products. ELSS funds have a lock-in period of three years. The investment made in ELSS funds qualifies for tax exemption under Section 80C of the Income Tax Act. ELSS funds are open-ended and the investor can subscribe to the fund at any day. Since ELSS is an equity-based fund, the returns from these funds reflect the returns from equity markets.


What are the tax benefits of investing in ELSS funds?

Investment of up to Rs. 1.5 lakh made in ELSS funds qualifies for tax deduction under Section 80C every year. The returns generated on the investment after completion of the lock-in period are 100% tax-free. The dividends you earn are tax-free and you do not have to pay the long-term capital gain tax either.

Why are the other benefits of investing in ELSS funds?

ELSS funds don't just help you save tax but also give you an opportunity to compound your money from the potential of Indian equity market. Moreover, compared to other tax saving instruments like PPF, NSC, and Bank FDs, the lock-in period of an ELSS fund is much lower. ELSS fund has a lock-in period of 3 years from the date of investment. You can opt for dividend option and get some gains during the lock-in period. Also investing in ELSS funds through SIP helps in Rupee Cost Averaging. There is no maximum limit to invest in ELSS funds, but you can claim a tax deduction up to Rs.1.5 lakh only.


Who can invest in ELSS funds?

Individuals and HUFs are eligible to invest in ELSS funds. NRIs can also invest in ELSS funds. However, most mutual fund companies do not allow NRI’s from Canada and USA to invest in India.

For whom the ELSS is suitable?

ELSS is suitable for those types of investors who are not risk averse and want to invest in tax saving options. ELSS is a good option to have for youngsters who have just started their career. ELSS is also suitable for those investors who have the ability to take the risk as well as flexible long time horizon for returns that beat inflation.

How to invest in ELSS funds?

KYC compliance is compulsory for investing in mutual funds in India. Once you fulfill KYC compliance you can start investing. There are offline and online options to invest in ELSS funds. You can invest in ELSS funds online through AMC (Asset Management Company) websites, brokers’ platforms or independent websites. You can invest in a lump sum or via SIP.

What is the investment limit in ELSS funds?

You can start investing in ELSS funds with a minimum amount of Rs 500. There is no upper limit on investment. However, you can avail a maximum deduction of Rs. 1.5 lakh under Section 80C of Income Tax Act in a financial year.

What is the investment tenure in ELSS fund?

ELSS fund has a lock-in period of 3 years from the date of investment. This means you can exit from ELSS fund by selling it after 3 years. However, you can stay invested in ELSS fund as long as you want, with or without further contributions. If you are investing in ELSS via SIP, then every installment will be locked in for 3 years from the respective investment date.




What are the plan options available in ELSS Funds?

ELSS funds have two plan options:
1. Growth option: In this option, you will get a lump sum on the completion of 3 years. This plan option is recommended for long-term wealth creation.
2. Dividend option: Under this option, you will get dividend whenever dividend is declared by the fund even during the lock in period. The dividend received is tax-free.

Which are the best ELSS funds?

The best performing ELSS funds are:
1. Axis Long Term Equity Fund
2. DSP BlackRock Tax Saver Fund
3. Aditya Birla Sun Life Tax Relief 96
4. Reliance Tax Saver (ELSS) Fund
5. Franklin India Taxshield Fund
You may invest in these ELSS schemes via SIPs but keep an investment horizon of five years or more in mind.

How are the above-mentioned ELSS schemes performing?

Performance of some ELSS Schemes

Returns in Percentage*
Scheme Name
1 year
3 years
5 years
DSP BlackRock Tax Saver Fund
28.42
13.87
19.82
Axis Long Term Equity Fund
30.19
11.74
21.96
Aditya Birla Sun Life Tax Relief 96
37.78
15.31
21.56
Reliance Tax Saver (ELSS) Fund
37.29
10.99
21.97
Franklin India Taxshield Fund
23.03
10.04
17.78
*As on 04/12/2017

Is premature redemption is allowed in ELSS funds?

ELSS is an equity fund and comes with 3 years lock-in period. Therefore, you are not allowed to redeem before completion of 3 years lock-in period. You will necessarily have to remain invested for 3 years.



What are the advantages of ELSS fund over NSC and PPF?

ELSS fund has a short lock-in period compared to NSC and PPF.   
Since ELSS is an equity-based fund, the earning potential is high. If you choose for dividend payout option, you can get some gains during lock-in period. You can invest in ELSS funds via SIP.

What are the disadvantages of ELSS fund over NSC and PPF?

Since ELSS is an equity-based fund, the risk factor is very high compared to NSC and PPF.


Is investment in ELSS funds risky?

ELSS funds come with equity-related risk as they invest in the stock markets. ELSS funds do not guarantee the returns. However, the best performing ELSS funds generated good returns post inflation.

How to check ELSS funds investments?
You can check your ELSS funds investments in the quarterly statements which are sent by the AMC to every investor. All the AMCs provide online facility to investors, which allow a hassle free view of the investments.


Also read: How to invest in mutual funds online?
Also read: What is SIP (Systematic Investment Plan)?

Also read: NSC (National Saving Certificate)
Also read: Things you should know about PPF account

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All about ELSS | Equity Linked Savings Scheme | Tax Saving Mutual Funds



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