Nov 23, 2017 4 min read

6 Reasons Why You Should Invest in the ELSS Funds

Are you still unaware of ELSS? Here’s all you need to know about it.
Are you searching for the best tax saving instrument so that you can avail tax benefits this year? Let us tell you that ELSS Funds are the most opted instruments which offer excellent benefits to the investors.

You must check the details and benefits of ELSS funds so that you too can avail them by investing in the most suitable one.

Let’s know about the basic details of ELSS Funds:

Equity Linked Savings Schemes, also known as ELSSs, are open-ended equity funds offered by the mutual funds in India. They invest in the equities of all categories of the companies, thus are also known as diversified-equity funds. Their primary motive is to provide tax benefits to the investors under section 80C of Income Tax Act of India, 1961. One can invest in the ELSS funds by using any of the ways of investing in mutual funds, which include Systematic Investment Plan (SIP) and Lumpsum. It is also considered as the best tax saving instruments by the majority of the investors because of its highly rewarding nature.

Benefits of investing in ELSS Mutual Funds:

  1. Tax Saving: The most important one is the tax benefit. Being a scheme under the tax saving category, it offers the investors to avail a tax deduction of up to Rs. 1.5 lakh on the total taxable income each financial year under section 80C of the Income Tax Act. It means that you can save up to Rs. 46,350 each financial year if you are falling under the highest tax slab, i.e., 30% bracket. Moreover, if you are falling under the bracket of 20%, then you can save up to Rs. 30,900 on your taxes.
  2. Shortest Lock-In Period: They have shortest lock-ins of minimum three years as compared with the other tax saving instruments such as PPF, NSC, Fixed Deposits, etc. Therefore, if you will invest in ELSS, then you will be able to redeem all your money along with the profits earned after the completion of three years lock-in. But, your investment will get locked-in for the minimum period of 5, 10, and 15 years in case you invest in FD, NSC, and PPF respectively.
  3. Save Tax Twice: When investing in ELSS, you get tax free capital gains and dividends. In simple words, ELSS helps you to avail dual tax benefits. Not only you get your income tax liability decreased, but also entitled to get tax free gains and dividend on your investment. Therefore, you save tax twice.
  4. Start Even With the Least Amount: ELSS allows you to start your investment even with a small amount of Rs. 500 per month. It may not be possible for all to invest a bulk amount at a single time through Lumpsum, so those people can choose the way of SIP and save tax on their income.
  5. Get a Wide Range to Select the Best One: There are many schemes available under the category of ELSS by different asset management companies. All the funds have almost similar objectives and style as they fall into the same category. But, the investment style and the performances can vary as different schemes are handled by different fund managers. The experience and expertise of the fund manager impact the profitability of the scheme you choose to invest in.
  6. Capital Appreciation: One of the most excellent benefits of investing in ELSS funds is the capital appreciation. When you invest in other tax saving instruments, no doubt you get tax benefits. But, ELSS helps you to avail both tax benefits as well as capital appreciation in the long term. They invest in the equity and equity related instruments of various companies which allow you to create long-term wealth.

Last but not least, ELSS is the best option to invest in as it provides higher returns on your investments in the long-term period. The historical record depicts that ELSS has offered a return of over 14-16%, whereas the other options such as FD, NSC, and PPF has recorded only 8-8.5%, 8.5%, and 8.1% respectively.

Let’s check out some of the best ELSS Funds to invest in 2017 in India:

  • Tata India Tax Saving Fund: One of the best schemes under the category of tax saving mutual funds, Tata India Tax Saving Fund growth has provided healthy returns to the investors. Its return since launch has been recorded at 20.23%. Moreover, its trailing one, three, and five years returns have been tracked at 35.31%, 17.55%, and 21.51% respectively. It invests in a diversified manner in the equity and equity related instruments to attain a stabilised portfolio targeting both returns and value along with providing tax benefits under section 80C of Income Tax Act. Mr. Rupesh Patel is managing this scheme since April 2015, and since then it is showcasing quite a healthy performance.
  • Aditya Birla Sun Life Tax Relief 96: A tax saving scheme of Aditya Birla Sun Life Mutual Fund providing the best benefits of ELSS investments. It has showcased excellent performance in recent past which helped it to jump from the third rank to the second rank for the quarter ended September 2017. You can also invest in this scheme for tax savings and attains high growth in the capital investments in the long-term period. It was launched in the year 1996, and its return since launch has been recorded at 25.92%. The trailing one, three, and five-year returns of this scheme are tracked at 38.68%, 16.43%, and 22.85% respectively. The fund manager, Mr. Ajay Garg is handling the management of this scheme since 2006.

Henceforth, you can opt for these schemes if you want to save more on your income tax and the investment objectives match to that of yours. Start your investment today to reap the maximum possible benefits under section 80C and also high returns from the equities.