With the approaching tax saving season (i.e.1 April till March 31st )each year, people look to buy the best tax saving funds to save tax U/S 80C. However, in all tax saving options ELSS funds can be called as the best tax saving funds because of a few reasons which we will discuss in this post.
Table of Contents
What is ELSS?
ELSS full form is Equity linked saving schemes. ELSS funds are equity mutual funds which invest in equity and equity related instruments and also save tax under section 80C.
These tax saving mutual funds, ELSS funds have minimum lock in of 3 years from the investment date.
For instance if you invest your money in January 2022 then you can withdraw your money after january 2025 only.
This time you do not have any access to your money in between this time.
Features of ELSS tax Saving
ELSS mutual funds have some unique features such as
- ELSS funds typically invest 80% corpus in equity or equity related instruments.
- These tax saving mutual funds have a 3 year lock in time, the least time amongst all tax saving options.
- These funds invest in a diversified manner because they invest across all investment categories i.e. large cap ,midcap and small cap category.
- You get tax deduction(max 1.5 lac) under section 80C, if you invest in ELSS funds.
- There is no maximum limit to invest in mutual funds however, you get tax deduction only up to 1.5 lakh in a Financial year.
- You can invest in Equity linked saving schemes via lump sum investment or SIP investment also.
- Profits from equity linked saving schemes are treated as Long term capital gain tax and taxed as per the prevailing law.
Additional reading
Top 5 Post Office Tax Saving Schemes
https://bestinvestindia.com/sip-5000-per-month/
To start a SIP https://bestinvestindia.com/how-to-start-mutual-fund-sip/
Advantages of investing in ELSS tax saving mutual Funds?
Probably ELSS tax saving mutual Funds are the best way to save tax and create wealth in the long term.
- A short lock in Time : The best advantages of ELSS mutual Fund is the least lock in time of just three years. This short lock in time gives you an option to withdraw the fund at an early date.
- Inflation beating returns: equity linked saving schemes invest predominantly in the stock market and thus, they have the potential to earn better returns compared to other traditional tax saving options.
- Tax treatment you can save tax under section 80C on investment up to Rs.1.5 lakh every year. The gains from these funds are treated as long term capital gain( LTCG). Here LTCG up to Rupees 100000 is exempt from tax. If you withdraw the profit less than 1 lakh rupees then no tax will be applicable here.
Read more: https://bestinvestindia.com/mutual-fund-taxation-fy-2019-20/
- Flexible investment mode: you can invest in ELSS funds either as a lump sum transaction or monthly investment SIP or whenever you want to.
- Read more about SIP taxation: https://bestinvestindia.com/sip-taxation-how-sips-are-taxed/
- Flexible investment time: In case of lump sum investment, you can choose to invest in an ELSS fund as per your convenience.
- Affordability: with the help of a SIP option investors can invest amount as little as Rs.500 also.
- https://www.youtube.com/watch?v=ylhcWvddJf4
- Diversification: mutual Funds invest in various equity mutual funds to avoid huge risk exposure concentrated in less number of funds.
- https://www.youtube.com/watch?v=NHbu68vpE2E&t=14s
- Expert management: ELSS mutual Funds are monitored by experts with exhaustive knowledge of mutual funds. Fund managers analyze the market and stocks to leverage the market trends.
Disadvantages of ELSS funds
Each coin has two different sides one positive and one negative let’s discuss the the the downside of ELSS funds
- Market Volatility since equity linked saving scheme invest in equity and equity related instruments, the returns are market linked. That also means you will get higher return in the up market and you may get a lower return in the downside market.
- Lock in time these tax saving funds have a lock in time of 3 years and thus you cannot withdraw before this time.
- Not suitable for risk averse investors if you are a risk averse investor and you do not want to take market risk then ELSS mutual Funds are not suitable for you.
- Management fee: As tax saving mutual Funds are managed by professional fund managers one has to expect a certain fee that is liable to pay for their expert management.
https://bestinvestindia.com/tax-saving-elss-sip-account/
Top 10 Equity linked Saving Scheme (ELSS) funds
Conclusion
ELSS Funds are the most efficient way to save tax in India. You can yourself compare and invest in Best ELSS funds either one time or as SIP.
