ELSS Mutual Funds are a special category of mutual fund that can save taxes under section 80C. That’s not the only USP of these tax-saving MF, but these ELSS mutual funds ( Equity Linked Saving Schemes) help you to create wealth in the long run.
One can save tax up to ₹46,800/- annually (for the highest tax bracket). These Tax Saving Mutual funds offer the Lowest Lock-in of 3 years only.
Explore other Tax saving schemes Top 5 Post office tax saving scheme
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What is ELSS in Mutual Fund?
Contrary to popular belief, not all mutual funds are tax saving in nature.
Only a special category of mutual funds called as Tax saving mutual fund (ELSS MF) can save taxes for you U/S 80C. Check the post –Top 10 Tax Saving ELSS Mutual Funds 2024 -Invest To Be Wealthy
ELSS Mutual Fund lock-in period
ELSS Mutual Fund lock-in period is only three Years. The tax Saving MF offer the least among all tax-saving investments.
ELSS Mutual Fund Tax Benefit
ELSS full form is an equity-linked saving scheme. ELSS is Commonly known as a tax savings mutual fund.
ELSS fund is a type of diversified equity mutual Fund that offers tax deduction under section 80C of the Income Tax Act 1961. These tax-saving funds have a lock-in period of three years.
One can invest upto Rs. 1.5 lakh under section 80C and get a tax deduction under the old tax regime.
Is ELSS tax- free after 3 years?
Since you can sell ELSS funds after completion of 3 years only, the gains are taxed as long-term capital gain (LTCG). These gains will be taxed at @10% (If the income is above Rs.1 lac).
For instance say you have invested Rs 1.5 lac this financial year.
suppose you withdraw anytime after the completion of 3 years and your money value grows to Rs 3 lac. Then your capital gain/profit is long-term in nature ( as redeemed after 1 year). This gain of Rs 1.5 lac will be taxable as LTCG (Long-term capital gain).
Invested Amount -Rs 1.5 Lac
Redeemed Amount -3 lac
Gain – Rs 1.5 Lac
Gain upto Rs 1 lac is exempt from tax
The remaining 50000 will be taxable at @10%.
So your tax liability will be 5000.
Now, suppose you sell and redeem money partially and your gain is 95000. Your tax liability will be zero as the gains are below Rs 1 lac.
Do you know there are efficient ways to reduce taxes? Top 10 Tax Saving ELSS Mutual Funds 2024 -Invest To Be Wealthy
Should you invest in ELSS Mutual Funds?
When there are several options available for tax saving purposes, then why should you invest in Tax Saving Mutual funds to save on tax.
Or should you choose the other safer options?
Equity investment can be highly rewarding if one enters in low markets and exits in high markets. But unfortunately, nobody can time the market.
So when is the right time to invest?
The answer is NOW. Now is a good time to invest.
If you want to invest as a lump sum then you can invest in a staggered manner.
Suppose, If you wish to invest 1.5 lakh then you can invest 10% to 20% of the amount at each market fall or otherwise you can start a STP for one month time till March 31.
It is always best to invest as an SIP or if you want to make a lump sum investment then you can use STP mode and thereby refrain from investing at a single point in time. If you enter a single point investing time and the market falls sharply, then your money value can decline sharply.
You can use ELSS funds for not only tax saving but for wealth creation also. While investing in an equity linked saving scheme you can link your investment with any of your life financial goals and create huge wealth for yourself.
ELSS Return Rate Example
Lets take a ELSS mutual fund.
suppose you invested 1.5 lac in Tax saving fund on 3/3/2020 and redeemed money on 3/3/2023.
Its value in 2023 is 2.52 lac and an annual return of 18.99% is generated.
Now suppose you start a SIP of Rs.12500 in the fund started from Dec 2015 and redeemed in March 2023. The wealth accumulation can be as follows:
Invested amount – Rs.10,87,500
Value in March 2023 – Rs.19,26,354
Tax Saving Return Rate -15.73%.
NOTE: Please note mutual fund return is not guaranteed and return rate differ scheme to scheme. Therefore it is suggested to invest under the guidance of a expert Financial advisor.
Which are the best ELSS Funds to invest in 2023?
The best funds can be chosen on the basis of past performace, comparision with the peers, low risk ratios and alpha generated by the fund. If we compare the performance than the few best funds are as follows:
Read more about Top ELSS Funds
How long should I stay invested in ELSS Mutual Funds?
Although the lock-in period in ELSS Funds is only 3 years i.e you can withdraw your money after completion of 3 years. One should stay invested for at least 5 years in ELSS funds to get the maximum benefit from the equity investments.
However, if the fund’s performance is not up to the mark as expected, you can shift the money to another fund.
Read more How ELSS MF are taxed?
