Investors look for investment opportunities that can help them generate wealth, get regular returns, and/or save taxes. While there are numerous investment schemes available in the market, most of them offer returns that are taxed according to the Income Tax rules. This is where ELSS funds step in. Equity Linked Savings Scheme or ELSS Funds are tax-saving equity mutual funds. Here, we will explore ELSS Tax Saving Mutual Funds and talk about all the aspects that you need to know about them.
Tax exemption of the invested amount up to a limit of Rs. 150,000. Further, the income that you earn under this scheme at the end of the three-year tenure will be considered ELSS funds are equity funds that invest a major portion of their corpus into equity or equity-related instruments. ELSS funds are also called tax saving schemes since than offer tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act.
As the name suggests, an ELSS fund is an equity-oriented scheme with a mandatory lock-in period of three years. In recent years, many taxpayers have turned to ELSS schemes to avail of tax benefits. If you invest in ELSS schemes, then you can avail as Long Term Capital Gain (LTCG) and will be taxed at 10% (if the income is above Rs. 1 lakh).
When you go for the growth option, you will not receive benefits in the form of dividends. As an investor, you will get the gains only at the time of redemption. This helps in the appreciation of the total NAV and thus, the profits multiply. There’s one thing to keep in mind – the returns are subject to market risk.
You need to have an investment horizon of longer than five years to consider investing in ELSS funds. The equity exposure of ELSS funds requires you to have a longer investment horizon in order to mitigate market volatility.
ELSS mutual funds come with a lock-in period of three years. Your investments are mandatorily locked-in for three years from the date of investment, and you cannot redeem your holdings until the completion of this period.
| Instrument | Lock-In-Period (Yrs) | Investment Amount | Returns (% p.a) | Investible Period (Yrs) | Return Value |
|---|---|---|---|---|---|
| PPF | 15 | 1,50,000 | 7.10 | 15 | 4,19,695 |
| FD | 5 | 1,50,000 | 7.25 | 15 | 4,28,599 |
| NSC | 5 | 1,50,000 | 7.70 | 15 | 4,56,380 |
| ELLS (Equity Linked Saving Scheme) | 3 | 1,50,000 | 14.00 | 15 | 9,20,691 |
