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Tax saving mutual funds: Equity Linked Saving Scheme (ELSS)

SAVE UP TO INR 46800

Planning your taxes is an integral part of your financial planning. Sec 80C of the Income Tax Act allows you to claim deductions from your taxable income by investing in certain investment tools. One of the most popular Sec 80C investments is in tax saving mutual funds or Equity Linked Savings Scheme (ELSS). 

Let’s understand what is ELSS.

ELSS (Tax Saver Fund) is a kind of equity diversified fund having major corpus invested in equities. Since its an equity fund the returns are also reflected from the equity markets.

This type of mutual funds have a lock-in of 3 years from the respective investment dates.

One can withdraw the amount after 3 years.

What should you look before investing?

One should look for an adviser before investing in tax saving scheme. An adviser will help you to select the right fund as he analyses & researches about the funds which will help the investor to meet the purpose of tax saving as well as generating returns.

WHY Tax Saver Funds (ELSS) over other tax saving instruments:

 As the table shows ELSS compared to various tax saving instruments under 80 C the lock-in period of ELSS is much lower.

While ELSS investment is locked in for 3 years, PPF investments are locked in for 15 years, NSC investments are locked in for 5 years, and bank fixed deposits eligible for tax deduction are locked in for 5 years etc. ELSS is an investment in equity markets and investing in this for a long term can give you better returns compared to other asset classes over the long term.

Tax Saver Funds have both dividend and growth options:

Similar to other equity funds, ELSS funds have both dividend and growth options. Investors get a lump sum on the expiry of 3 years in growth schemes. 

On the other hand, in a dividend scheme, investors get a regular dividend income, whenever a dividend is declared by the fund, even during the lock-in period. 

Tax-Free income :

For tax purposes, returns from Tax Saver Fund are tax-free (Up to 100000/year). You can claim up to Rs. 1.5lakh of your Tax Saving investment as a deduction from your gross total income in a financial year under Sec 80C of the Income Tax Act.

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