Tax Saving and Wealth Creation with ELSS Mutual Funds
What is ELSS Mutual Fund?
Equity Linked Savings Schemes (ELSS) have scored over other tax saving options for several reasons.
ELSS offers tax-efficient returns with a lock-in period of just 3 years and tax-free dividends for those who choose the dividend options. Invest in ELSS funds to gain substantial tax-free returns!
An ELSS is an Equity Linked Savings Scheme, that allows an individual or HUF a deduction from total income of up to Rs. 1.5 lacs under Sec 80C of Income Tax Act 1961.
Thus if an investor was to invest Rs. 50,000 in an ELSS, then this amount would be deducted from the total taxable income, thus reducing her tax burden.
These schemes have a lock-in period of three years from date of units allotment. After the lock-in period is over, the units are free to be redeemed or switched. ELSS offer both growth and dividend options. Investors can also invest through Systematic Investment Plans (SIP), and investments up to ₹ 1.5 lakhs, made in a financial year are eligible for tax deduction
See video to get information on ELSS Funds
Why ELSS = Save Tax + Build Wealth
Save tax : Claim deduction up to 1.5 lakhs and save up to 46,800* in taxes under Section 80C of IT Act.
Build wealth : Potential to create wealth since money is invested in equities.
One of the lowest lock-in periods. ELSS : 3 Years and others like : Bank Fixed Deposit : 5 years / Public Provident Fund (PPF) : 15 years/ National Savings Certificate (NSC):5-10 years / Life Insurance : 5 years
ELSS allows Indian citizens to reduce their taxable income by Rs.1,50,000 under Section 80C. There are other investment options that help save under this same Section, but ELSS offers the lowest lock-in obligation of 3 years and the possibility of the highest returns. The funds invested in ELSS schemes are exempted from taxation, but if the returns on investment are greater than Rs.1 lakh, they are charged tax at 10% under LTCG. ELSS investments have historically provided excellent returns when compared to similar forms of investment. This investment avenue is also popular with experienced investors who wish to add an equity component to their existing investment portfolio
Comparison of tax saving investments in India
ELSS to Build Wealth
It’s the equity element that gives ELSS it’s unique wealth-creation abilities.
How to get sustained high returns?
This is one of the most frequently asked questions in the field of finance. The answer is simple: invest systematically. Over time, the impact of compounding will help you in generating higher returns. This easy to follow approach is applicable to every type of investor, from the low-risk taker to the ones with a higher risk appetite. The outcome for both will be the same, the only difference being that the low-risk taker will take a longer time to build a large kitty over the one who is willing to take bolder risks.
To illustrate this method, we built five different scenarios taking into account investments in four different instruments: PPF; Average of equity funds over a 20-year history; and Sensex Total Return Index, which is nothing but Sensex which also includes dividends. In each instance, we took Rs 1.5 lakh as an annual investment because this is the upper limit of what one needs to deploy each year to claim deduction under Section 80C to save on income tax. We took the actual data over the past 20 years of each these instruments to demonstrate wealth creation. Remember, the last two decade includes phases of ups and downs, scams, global events and events local to India, which collectively factor in the impact of these events on our finances.
Top 10 Best ELSS Mutual Funds :
While selecting a fund, you need to analyze different parameters and then invest in a suitable one. Also, investing depends on an individual’s financial goals, investment horizon, and risk appetite.
The following table represents the top 10 performing ELSS funds based on the past 3 years. Investors may look at different parameters like returns of 1 year or 5 years, or different financial parameters.
At End :
Investing in mutual funds might be a cumbersome task for a novice investor. In case you are finding it difficult and not able to decide which fund is the best for your requirements, please contact us for investment and advice where the best performing mutual funds are handpicked by our experts.