Nowadays, financial planning is a necessity for every household. But, hiring a financial planner is not feasible for everyone, especially for an average India. However, there are many schemes which have been initiated to reinforce India's economic development and assist the citizens to accomplish their financial goals. Investment in an Equity Linked Savings Scheme is one of the most suitable option under a mutual fund. An equity linked savings scheme is a type of mutual fund which invests primarily in equities i.e. shares of the companies listed in the share market with an intention of generating market-linked returns. Additionally, investment in an ELSS also entitles one a tax deduction of ₹1,50,000 under Section 80C of the Income Tax Act, 1961.
Just like traditional modes of investment such as Public Provident Fund (PPF) and National Savings Certificate (NSC), an ELSS also has a minimum lock-in period of 3 years while the former two have a lock-in period of 15 years and 8 years respectively. ELSS comes with a shortest lock-in period of 3 years.
A SIP (Systematic Investment Plan) is one in all the best and hassle-free choices for purchasing a mutual fund subscription. An SIP is when you invest a small and fixed sum in a mutual fund at regular intervals, that is say on a monthly basis. It is the foremost disciplined investment plans and can assist you to cut back the propensity of market related fluctuations. Additionally, it is an acceptable tool that helps you preserve capital and render important wealth creation potential.
Since an ELSS funds invests in shares of the stock market, the returns are based upon the performance of the shares. Ideally, such returns are higher in comparison to an FD or PPF. An average rate of return can be as good as 20% when invested for a period of 3-5 years.
One of the best reasons to invest in a mutual fund is that you don't need to invest a lump sum amount at one time. You can begin with an amount as low as ₹500 as an initial form of investment.
As mentioned before, investment in an ELSS funds plan entitles one a tax benefit up to ₹1,50,000 as per Section 80C of the Income Tax Act, 1961.
With an ELSS funds, there is a high level of transparency as you are completely aware of every transaction and fund details which are a part of your investment portfolio.
With net banking, you can pretty much subscribe to any scheme of the mutual fund house online, without the hassle of submitting any documents or visiting the mutual fund / bank branch.
Lower tax: ELSS funds have a lock-in amount of a minimum of 3 years. Therefore, returns from An ELSS investment are treated as LTCG (long-term capital gains). However, not like STCG (short-term capital gains), which attracts a tax of 15%. Thus, an ELSS funds substantially attracts lower tax.
Not Required knowledge of the stock market: You are not required to have comprehensive knowledge of the stock market and mutual funds. The mutual fund is managed by financial experts and fund houses on your behalf. They ensure that the fund attains a break-even as defined by its investment objective.
It is important that you start investing early not for ELSS funds, but also for other tax-saving investments. To maximize returns, investing early and regularly is the key. Also, if you pick up the wrong ELSS funds, you don't have the option of moving your investments for the next three years. Therefore, investing early and correctly is crucial, so that you have sufficient time to research about how to invest and where to invest.
This point is not only valid for ELSS schemes, but also for all other mutual fund schemes. As suggested by industry experts, it is advisable to invest in a scheme that has consistently performed for at least 5 years.
Returns on investment are important, but focusing only on returns will not help you to achieve maximum out of an ELSS funds. It is vital to look whether an investment philosophy matches your view. For instance, a scheme that stays on top of the performance chart with high risk exposure may not suit a traditional investor.
Since the money is locked in for 3 years, some investors tend to pull their money out as the lock-in period is over. However, there is no need to pull the money out if the scheme is performing well. Remember, you should be ready to invest at least for five to seven years in the ELSS scheme.
There are investors who wait for the lock-in period to end and jump to another scheme. It is not advisable to jump from one fund to another only because the other scheme is giving a better return than your scheme. It is better to pull your money out only if your fund is not performing well.
ELSS is the most recommended by most of the industry experts because it provides the benefit of tax deductions under Section 80C of the Income Tax Act, 1961. Thus, allowing investors to enjoy both the benefits of capital appreciation, as well as tax benefits.
There are no limitations or no upper limit on ELSS investments, although investments of only up to Rs.150,000 per year are allowed to be claimed as deductions under Section 80C of Income Tax Act, 1961.
The ELSS funds have the same risk associated with them as other equity-related schemes possess. In case the markets go through a bear phase, even the best ELSS funds can see a drop in the value of their portfolio. It is observed that during a bull run, an ordinary ELSS funds will also be able to generate returns. However, a bear phase will separate the best from the rest. Even if the ELSS funds comes with a fair share of risk, their performance is dependent on the companies they invest in.
Schemes are based on returns they offer. For example, we have a classic example of last year where Axis Long Term Equity fund gave an annual return of more than 24%, whereas Invesco India AGILE Tax gave a return of barely 8% annually. If we consider these figures, it is very difficult to predict the best mutual funds. However, chances are that most likely the highest forming mutual fund last year will become the highest performing mutual fund this year as well.
The ELSS has two investment options, first the regular and other direct. The regular plan charges more or higher cost ratio every year because of the payment to the one who distributes mutual fund. The vital difference between the plans being, they will have different NAV's. In case, when compared to each other, one should go for the direct plan.
All of this is only possible if you have a functional bank account, this is from where all your money will be deducted for investment and dividends will get credited.
It is always beneficial to select an intermediary for subscribing to a mutual fund. There are plenty of good intermediaries in the market online and offline. Additionally, you do not have to pay any fee to the intermediary.
A mutual fund distributor is a person who helps you invests in a mutual fund with the aim of providing higher benefits to you. Ensure that you select a good mutual fund distributor.
Almost every fund house and bank has the facility of investing online. Online investment in an ELSS plan is convenient, paperless and hassle free.
| Type | Open ended ELSS |
| Benchmark | NIFTY 500 TRI |
| Fund Manager | Mr. George Heber Joseph has been managing this scheme since April 2015 |
| Risk | Moderately high |
| Asset size (Crores) | ₹5386 |
| Return % (1Yr) | 6.84 |
| Return % (3Yrs) | 10.25 |
| Return % (5Yrs) | 18.61 |
Investment objective: An Equity Linked Savings Scheme that aims to generate long term capital appreciation by primarily investing in equity and related securities and provides tax benefit under Section 80C of Income Tax Act, 1961.
Suitable for: Long term wealth creation solution.
| Type | Open ended ELSS |
| Benchmark | S & P BSE 200 |
| Fund Manager | Amit Ganatra / Dhimant Kothari |
| Risk | Moderately high |
| Asset size (Crores) | ₹37.81 |
| Return % (1Yr) | 5.1 |
| Return % (3Yrs) | 12.3 |
| Return % (5Yrs) | 21.3 |
Investment objective: To generate long term capital growth from a diversified portfolio of predominantly equity and equity-related securities
Suitable for: Long term wealth generation.
| Type | Open ended ELSS |
| Benchmark | S & P BSE 100 TRI |
| Fund Manager | Yogesh Patil / Ravi Gopalakrishnan |
| Risk | Moderately high |
| Asset size (Crores) | ₹848 |
| Return % (1Yr) | 3.09 |
| Return % (3Yrs) | 8.49 |
| Return % (5Yrs) | 14.65 |
Investment objective: Seeking to provide long term capital appreciation by predominantly investing in equities and to facilitate the subscribers to seek tax benefits as provided under Section 80C of the Income Tax Act, 1961. However, there can be no assurance that the investment objective of the scheme will be realized.
Suitable for: Capital appreciation over long term.
| Type | Open ended ELSS |
| Benchmark | S & P BSE 200 TRI |
| Fund Manager | Mr. Prasanna Pathak |
| Risk | Moderately high |
| Asset size (Crores) | ₹51 |
| Return % (1Yr) | 3.85 |
| Return % (3Yrs) | 12.43 |
| Return % (5Yrs) | 16.53 |
Investment objective: To provide long term capital appreciation over the life of the scheme through investment predominantly in equity shares, besides tax benefits.
Suitable for: Investment in equity & equity related instruments for long term capital appreciation.
| Type | Open ended ELSS |
| Benchmark | NIFTY 500 TRI |
| Fund Manager | Harsha Upadhyaya |
| Risk | Moderately high |
| Asset size (Crores) | ₹743 |
| Return % (1Yr) | -2.90 |
| Return % (3Yrs) | 9.80 |
| Return % (5Yrs) | 18.32 |
| Type | Open ended ELSS |
| Benchmark | S & P BSE 200 |
| Fund Manager | Jinesh Gopani |
| Risk | Moderately high |
| Asset size (Crores) | ₹1504.73 |
| Return % (1Yr) | 2.5 |
| Return % (3Yrs) | 10.5 |
| Return % (5Yrs) | 22.5 |
Investment objective: To generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities. However, there can be no assurance that the investment objective of the Scheme will be achieved.
Suitable for: Capital appreciation & generating income over long term.
Below are the top three reasons to invest in ELSS:
A SIP (Systematic Investment Plan) is one of the smartest and hassle-free options for investing money in mutual funds. A SIP is where you invest a fixed amount in a mutual fund scheme at regular intervals. It is one of the most disciplined investment plans and will help you reduce the propensity to market fluctuations. It is also a suitable tool that helps you preserve capital and also render significant wealth creation in the long-run.
All the investments authorized under section 80C comes with a mandatory lock-in period, unlike PPF and NSC which essentially come with a lock-in period of 15 years and 5 years respectively. ELSS funds comes with the shortest lock-in period of 3 years.
It is suggested that one should invest in ELSS funds for more than 3 years. If the market is hovering at its peak, investing in them will be fruitful if you have a horizon of at least five to seven years.
There are many tax saving investments that offer investment options, however, there are very few that provide the transparency you desire. With ELSS, you can track any and every change that is happening in your portfolio on a daily basis. This will not only help you stay updated with your portfolio but, in a way, also help you make other decisions based on your current returns.
With internet penetration, it is super easy and swift to transact ELSS funds online. One can almost keep a tab on the whereabouts on a daily basis.
Who should invest in ELSS?
ELSS is not suitable for a person who does not have the ability to take risk. Also, people who are retired and cannot take the risk should not opt for something like ELSS funds. In short, ELSS is not suitable for you unless you have the ability to take a risk as well as flexible long time horizon for investment.
How to start an ELSS Account?
You can inform your bank, mutual fund house, broker, intermediary, etc. that you wish to open the ELSS account or there are many nationalized or private banks that provide you with this option.
Why SIP is the best method for ELSS?
The Systematic investment plan is the best method to invest in ELSS as it maximizes your returns.
What are the types of ELSS?
There are two types of ELSS
Dividend Scheme: In case the fund announces dividend, then investors get an extra income based on those dividends.
Growth Scheme: There is no such provision for growth scheme.
Can I invest in ELSS online?
Yes, you can invest in ELSS mutual funds online. You need to visit the official website of the respective fund house and register an account. Post registration and KYC, you can subscribe to a mutual fund scheme of your choice.
Can we withdraw money from ELSS before 3 years?
No, the minimum lock-in period from an ELSS is 3 years.
Do I have to show PPF interest in income tax return?
Yes, the interest earned from your PPF investment has to be shown in your income tax return.
Does ELSS come under 80C?
Yes, it comes under Section 80C of the Income Tax Act, 1961.
How can I invest in ELSS through SIP?
One can start with an initial amount of ₹500 in an ELSS mutual fund via systematic investment plan. An SIP is a mode of investing small and fixed amount on a monthly basis for purchasing a mutual fund.
How can I invest in ELSS?
To invest in an ELSS mutual fund, you need to determine your investment purpose and investment horizon. Once finished, you can approach any of the mutual fund houses in India - offline as well as online - to make an investment.
How do I start a SIP?
For an SIP to begin with, you need to register your bank account with the respective mutual fund house. Once registered, you need to download an SIP mode of investment application form and submit the same at the bank. This will allow the bank to make automatic transactions on your behalf.
How do I stop an ELSS SIP?
For stopping an ELSS SIP, you will have to physically visit the bank and mutual fund house to submit an application for cancellation of your SIP.
How does ELSS work?
An ELSS, or an equity linked savings scheme, is a mutual fund which works by investing primarily in equities with an additional benefit of tax saving via deduction of up to ₹1,50,000.
How does ELSS SIP work?
An ELSS SIP works by investing in a mutual fund plan via SIP mode of investment. An SIP mode of investment is where you are required to invest a small amount on a monthly basis for purchasing units of a mutual fund.
How is ELSS taxed?
An ELSS fund attracts long term capital gain tax of 10%.
How many ELSS funds should I invest in?
You can invest in a multitude of ELSS funds as per your risk appetite and financial resources.
How much should I invest in ELSS to save tax?
The minimum amount to invest in is ₹500. However, tax deduction is applicable only up to ₹1,50,000.
Is ELSS return tax free?
No, an ELSS attracts a long term capital gains tax of 10%.
Is ELSS safe?
Yes, it is one of the safest investment instruments as you get to save tax as well as generate wealth in the long run.
Is ELSS taxable after 3 years?
Yes, your ELSS returns attract a long term capital gains tax of 10% post 3 years of investment.
Is PPF better than ELSS?
No, an ELSS offers the dual benefit of tax saving and wealth generation in comparison to a PPF.
What are the benefits of ELSS?
Tax saving and long term wealth accumulation are the primary benefits of ELSS funds.
What is the full form of ELSS?
The full form of ELSS is Equity Linked Savings Scheme.
What is the lock in period for ELSS?
The mandatory lock-in period for an ELSS is 3 years.
What is Section 80C?
Section 80C is a provision of the Income Tax Act where an individual can claim a deduction of up to ₹1,50,000 from his taxable income.
What is the maximum amount which can be invested in ELSS to claim tax deduction?
There is no maximum limit for investing in an ELSS funds, but a tax deduction can be claimed only up to ₹1,50,000.
What is ULIP investment?
A ULIP is a Unit Linked Insurance Plan, it is a combination of an insurance an investment plan.
What's an equity fund?
A fund which invests primarily in the shares of the companies listed on the stock market is known as an equity fund.
Which ELSS is best to invest in 2020?
The top 5 ELSS to invest in 2020 are - ICICI Pru Long Term Equity-Tax Svng-DP-G, Axis Long Term Equity - Direct (G), Kotak Tax Saver - Direct (G), Taurus Tax Shield - Direct (G) and CR Equity Tax Saver Fund - D (G).
How to invest in ELSS to save tax?
You can invest in an ELSS mutual fund via a systematic investment plan or as a lump sum amount from the respective asset management company or the fund house responsible for the same. Under an ELSS, you can claim a deduction of ₹1,50,000 under Sec 80C of the Income Tax Act, 1961.
Why equity linked savings scheme is the best tax saving investment option?
Individuals investing in ELSS can get tax benefit of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961. This is the only pure equity mutual fund plan where investors are eligible to claim Section 80C deduction benefits. However, it must be noted that LTCG tax is applicable on gains above Rs. 1 lakh at 10%, without any indexation benefit.
Can I redeem ELSS before 3 years?
No, you cannot redeem your money from an ELSS before the lock-in period of 3 years. You may opt to stop investing towards your ELSS scheme before it reaches its maturity, but not withdraw the money before the completion of the maturity tenure.
Does ELSS come under 80C?
Yes, annual investments of up to Rs. 1.5 lakh towards ELSS mutual funds attracts tax exemptions under Section 80C of the Income Tax Act, 1961.
Is maturity of ELSS taxable?
Yes, ELSS mutual fund investments are taxable after they have completed the maturity tenure of 3 years under the Long Term Capital Gains Tax at 10%.
What is ELSS and SIP?
ELSS (Equity Linked Savings Scheme) is a mutual fund category while SIP(Systematic Investment Plan) is a mode through which mutual fund investments are made. ELSS mutual funds have a lock-in period of 3 years and attract tax exempt of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act 1961, whereas there are no tax benefits on investments in SIP.
What is the difference between ELSS and mutual funds?
Equity Linked Saving Scheme (ELSS) is mutual fund category and involves investments in equity. The primary difference between ELSS and mutual funds is that the former offers tax exemptions of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. The lock-in period for ELSS is 3 years, while the maturity tenure varies for all mutual fund schemes.
What is the difference between ELSS and SIP?
ELSS is type of mutual fund with a lock-in period of 3 years. It attracts tax exemptions of a maximum of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. The returns on ELSS are also tax-free. In comparison, SIP or Systematic Investment Plan is a mode through which mutual fund investments are made every month or quarter.
Which is better ELSS or PPF?
The following are the salient features of ELSS and PPF investments:
Which is better ELSS or ULIP?
Let’s take a look at the primary difference between ELSS and ULIP:
