ELSS INVESTMENT- A TAX SAVER AND A WEALTH CREATOR

Tax saving is one of the important aspect of our financial planning, managing tax efficiently is an art. When it comes to saving taxes most of us wait till the month of March because we continue our habits to push everything to the last day of submission like our college time assignments. So when it comes to tax planning, assessee majorly focus on taking maximum benefit of Deductions under Chapter V1-A of Income Tax Act, 1961.  Based on this tax planning and co-inciding our financial goals, this blog will provide exhaustive knowledge of ELSS investments, its features, taxability along with recommendation for best ELSS plan to choose. Apart from ELSS Investment, the blog will also provide detailed knowledge on other tax saving investments.

What is ELSS Mutual Funds?

Equity-Linked Savings Scheme (ELSS) is an equity mutual fund investment that invests at least 80% of its assets in equity and equity-related instruments. Investments in an ELSS qualify for tax deductions u/s 80C of the Income Tax Act,1961 within the overall limit of ₹1.5 lakh. The amount you invest in ELSS is deducted from your taxable income, which helps you lower the amount of income tax you are liable to pay. Investments in ELSS are subject to a three-year lock-in period.

Features of ELSS?

Ø One can avail the option of lumpsum payment or SIP to invest in ELSS. Opting for SIP is good method of investment as it ensures regular flow of income and it also ensures rupee cost averaging due to stock market volatility.

Ø One can invest in ELSS via Direct Plan or Regular Plan. To understand Direct plan vs Regular Plan , click here

Ø Investors cannot redeem its fund for a period of minimum 3 YEARS due to its lock-in-period. This helps preventing outflow among the panic investors during the bear market.

Ø Despite their short lock-in period, ELSS  have historically given considerably higher returns compared to NSC and PPF that have longer lock-in periods.

Now lets have a comparision at other tax saving investment options available under Income Tax Act, 1961. In the below comparision tax saving investments like life insurance policies, pension plans and mediclaim policies are not taken into consideration as primary purpose of investing in these plans is securing our future and not earning income. 

ELSS vis-à-vis Other Tax-Saving Options:

Particulars	NSC	PPF	ELSS
Lock-in Period	5 Years	15 Years	3 Years
Min. Investments	Rs. 100	Rs. 500	Rs. 500
Max. Investments	No limit	Rs. 1,50,000	No Limit
Returns	6.80%	7.10%	As per market               (Average 15% pa return of past 5 years)
Combined Exemption u/s 80C	Rs. 1,50,000	Rs. 1,50,000	Rs. 1,50,000
Tax on Returns	Taxable as per slab rate	Exempt	Dividend- As per slab rate
			Redemption- LTCG @10% above 1,00,000

Which is the best ELSS Fund to invest in?

Investors usually finds it difficult to choose a right ELSS Fund. In order to make this investment decision easy, focus on the below mentioned parameters before investing:

Ø Fund Returns: Compare fund’s return with its peers to ensure that fund has consistently outperformed performed over the years.

Ø   Expense Ratio:  A lower expense ratio translates into higher take-home returns.

Ø  Asset Under Management: Higher AUM signifies that willingness of investor to invest in the fund. Investors usually trust the fund with higher AUM.  

Ø  Fund House History, Fund Manager’s experience, etc are the other parameters to be taken into consideration before selecting ELSS scheme.

There are many ELSS investment options available in the market, but after analyzing the above parameters below is the list of top performing ELSS schemes:

·      Axis Long Term Equity Fund

·      Mirae Asset Tax Saver Fund

·      Canara Robeco Equity Tax Saver Fund

·      DSP Tax Saver Fund and

·      Kotak Tax Saver Fund  

Keep sharing, Keep gaining.

By CA Dhruval Shah 

You may reach out to me at dhruvalcshah@gmail.com.

Disclaimer: The above blog is for knowledge purpose only. The author will not be responsible for any investment gains or loss, do consult your investment advisor before taking any investment decisions