Synopsis: Equity-Linked Savings Schemes (ELSS) offer investors a dual advantage: potential for higher returns through equity investments and tax benefits under Section 80C of the Income Tax Act, 1961. With a mandatory three-year lock-in period, ELSS funds have the shortest commitment among tax-saving instruments. Investments up to ₹1.5 lakh per financial year are eligible for tax deductions, making ELSS a compelling choice for individuals seeking tax efficiency and wealth accumulation.
As the financial year draws to a close, taxpayers actively seek investment avenues that provide tax benefits while offering substantial returns.
Equity-Linked Savings Schemes (ELSS), commonly known as tax-saving mutual funds, have emerged as a popular option.
These funds not only facilitate tax deductions under Section 80C of the Income Tax Act, 1961, but also invest predominantly in equities, presenting an opportunity for capital appreciation.
Understanding ELSS:
ELSS funds are diversified equity mutual funds with a mandatory lock-in period of three years, the shortest among Section 80C instruments.
Investors can start with a minimum investment of ₹500, either as a lump sum or through a Systematic Investment Plan (SIP).
While there is no upper limit to investment, only up to ₹1.5 lakh qualifies for tax deduction per financial year.
Top ELSS Funds to Consider:
Based on recent performance data, here are some ELSS funds that investors might consider:
This fund has demonstrated strong performance with a 10-year annualized return of 20.88%.
A SIP of ₹10,000 over the past decade would have grown to approximately ₹41.94 lakh, reflecting a CAGR of 23.65%.
Bank of India ELSS Tax Saver Fund - Direct Plan:
With a 10-year annualized return of 17.55%, this fund has shown consistent growth.
A monthly SIP of ₹10,000 could have accumulated to around ₹35.22 lakh over ten years, indicating a 20.42% annualized return.
JM ELSS Tax Saver Fund - Direct Plan:
Advantages of ELSS:
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Tax Benefits: Investments up to ₹1.5 lakh are eligible for deductions under Section 80C, reducing taxable income.
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Short Lock-in Period: A three-year lock-in is shorter compared to other tax-saving instruments like Public Provident Fund (PPF) and National Savings Certificate (NSC).
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Potential for Higher Returns: Being equity-oriented, ELSS funds have the potential to deliver higher returns over the long term, though they come with higher risk.
Considerations Before Investing:
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Market Risk: ELSS funds invest in equities, which are subject to market volatility. Investors should be prepared for potential short-term fluctuations.
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Investment Horizon: While the lock-in period is three years, a longer investment horizon of five to seven years is advisable to mitigate market volatility and enhance returns.
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Tax on Returns: Gains from ELSS are treated as Long-Term Capital Gains (LTCG). Currently, LTCG up to ₹1 lakh is tax-exempt; gains exceeding this are taxed at 10%.
Conclusion:
Equity-Linked Savings Schemes offer a compelling blend of tax benefits and potential for wealth creation. However, investors should assess their risk tolerance, investment horizon, and financial goals before committing. Consulting with a financial advisor can provide personalized guidance tailored to individual circumstances.
Disclaimer:
Investments in mutual funds are subject to market risks. Past performance is not indicative of future results. It is advisable to read the scheme information document carefully and consult a financial advisor before making investment decisions.
