Over the year’s investors have relied on ELSS or Equity linked savings-scheme as a means to make a profit and save tax as well. It has a nominal lock-in time of 3 years as under section 80c increasing its popularity further among investors. It is also a vital tax saving scheme as an investor can enjoy exemption up to 1.5 lakhs.
What is ELSS Fund?
Before you invest in ELSS, you should know the following points about ELSS.
- ELSS is one of the best tax saving scheme with the least number of lock-in years (3 years).
- Most of the portfolio under ELSS Fund is invested in different types of equities.
- It is free of entry as well as exit load.
- You can choose a regular dividend or await growth through capital appreciation
- If you invest in the right ELSS then you can get 10-12% returns, however, it is not risk-free (no mutual fund is free of the risk factor)
Apart from ELSS, there are other tax saving options that you can choose from. But ELSS is by far the best. Refer to the table below to understand how ELSS is the best option.
| Investment option to save tax | Lock in period
(years) |
Risk | Return | Tax |
| ELSS | 3 | High | 10-12% | LTCG (long term capital gain) |
| Fixed deposit | 5 | Low | 6-7% | Income tax |
| NSC or National Savings Certificate | 5 | Low | 7-8% | Income tax |
| PPF or Public Provident Fund | 15 | Low | 7-8% | Non-taxable |
| NPS or National Pension Scheme | Till retirement age of 60 | Moderate | 8-10% | Partially taxable |
ELSS beats its tax-savings competitor on three counts: tenure of investment, high return and taxation. Let us discuss each factor.
- Tenure of investment – In order to enjoy tax exemption, you need to invest for 5 or more number of years. Only with ELSS, you enjoy a tenure of 3 years. Many investors do not want to invest for longer duration and find ELSS to be perfect for its requirement of short-term commitment of 5 years.
- High return – ELSS by far gets the highest return. The best factor about such high returns is that after the term is over many investors re-invest their profit in a new ELSS scheme to maximize their profit. With other options, the investment gets locked in for years and successful completion leads to 6-10% profit.
- Taxation – Though ELSS is subject to long term capital gain tax. An exemption of 1.5 lakhs is allowed. If an investor does not have a gain of over 1 lakh they can consider recycling their ELSS after the lock-in period is completed. It helps with tax deductions for the investors.
However, similar to all mutual fund investment, ELSS also comes with its share of risk. Depending on your risk appetite choose an amount for investing in ELSS. If you choose a SIP then you can invest as little as Rs. 500 per month.
Investing in ELSS is simple. You can find a reliable brokerage like Kotak Securities who can invest for you. It not only saves you time but you will get the best suggestions on what serves your interest the most.