Wednesday, 4 April 2018

7 Things to know before buying ELSS Tax Saving Mutual Funds

7 Things to know before buying ELSS Tax Saving Mutual Funds

7 Things to know before buying ELSS Tax Saving Mutual Funds

ELSS stands for Equity Linked Savings Scheme. Investing in ELSS tax saving mutual funds is one of the best ways to save taxes. Investment in ELSS tax saving mutual funds can get you equity-like returns along with the benefit of tax saving. Since ELSS is an equity-based fund, the returns from these funds reflect the returns from equity markets. If you are planning to invest in ELSS, here are 7 important things to keep in mind before buying ELSS Tax Saving Mutual Funds.



7 Things to know before buying ELSS Tax Saving Mutual Funds

Following are 7 important things to keep in mind before buying ELSS Tax Saving Mutual Funds

1. Maximum Tax Benefit is only Rs 1.5 lakh

Investment in ELSS tax saving mutual funds qualifies for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. This means investment up to Rs. 1.5 lakh in ELSS would be deducted from your taxable income. However, there are many investment options that qualify for tax deduction under Section 80C so finalize your investment amount accordingly.



2. ELSS is a Diversified Equity Mutual Fund

ELSS (Equity Linked SavingsScheme) is a diversified equity mutual fund where nearly 100% of the corpus is invested in equity (share) and equity-related products. ELSS fund generally invests in the shares of large and small size companies. Since ELSS is an equity mutual fund, returns from an ELSS tax saving mutual fund reflect returns from the equity markets.

3. LTCG Tax on Gains from ELSS

Gains from ELSS are not tax-free. ELSS funds are equity mutual funds. In the budget 2018, the government of India has introduced 10 % tax on LTCG (LongTerm Capital Gains) on equity shares and units of equity mutual funds. The income arising from the sale of equity or equity mutual funds will be taxed at 10% if the amount of gains is exceeding Rs. 1 lakh. However, the profit earned up to January 31, 2018, will be grandfathered.



4. Investment tenure in ELSS fund

ELSS tax saving mutual funds has a mandatory lock-in period of three years from the date of investment. It means you are not allowed to redeem your ELSS fund before the completion of three years lock-in period. However, this is the shortest lock-in period among all the tax saving scheme. If you are investing in ELSS via SIP, then every installment is considered as a new investment and will be locked in for three years from the respective investment date.

5. Returns are not guaranteed

ELSS tax saving mutual funds comes 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. You should keep in mind that returns in ELSS funds fluctuate depending upon the equity markets. Hence the timing is very important for ELSS tax saving mutual funds.


6. Ways to invest in ELSS

ELSS tax saving mutual funds gives you two options for investments.
a). Investment through a lump sum. Lump sum means a single large investment in one go.
b). Investment through SIP (Systematic Investment Plan). SIP allows you to invest a fixed amount of money at a regular interval, over a period of time.


7. Plan options available in ELSS Funds

ELSS tax saving mutual funds has two plan options:
a). Growth option: In this option, you will get a lump sum when you redeem your ELSS fun after the completion of 3 years. This plan option is recommended for long-term wealth creation.
b). Dividend option: In this option, you will get dividend whenever a dividend is declared by the fund.



Some best ELSS funds

Some best performing ELSS tax saving mutual funds are:
1. IDFC Tax Advantage (ELSS) Fund
2. Aditya Birla Sun Life Tax Relief 96
3. Axis Long Term Equity Fund
4. Tata India Tax Savings Fund
5. L&T Tax Advantage Fund


You may invest in these ELSS tax saving mutual funds via SIPs but keep an investment horizon of five years or more in mind.

Also, read: How to start a SIP?

7 Things to know before buying ELSS Tax Saving Mutual Funds





No comments:

Post a Comment