Investing for Tax Efficiency: A Guide to ELSS Funds
Friday, Dec 8, 2023
In the intricate world of tax saving investments, Equity-Linked Savings Schemes(ELSS) have come out as a strong tool for individuals trying to enhance their tax liabilities while taking advantage of the potential of the stock market.
In this panoramic guide, we will explore the fundamentals of ELSS funds, look into the top performing investment funds, compare ELSS funds with other traditional tax saving funds and furnish industry statistics so that you make the right decision in the matter of your investment.
ELSS Basics
What are Equity-Linked Savings Schemes (ELSS)?
Equity-Linked Savings Schemes (ELSS) is a mutual fund that helps to save tax and escalate wealth accumulation at the same time. The primary mode of investment in this scheme involves equity. This scheme offers a three year lock in period to encourage long-term investment. The ELSS scheme also provides tax benefits under the section 80C of Income Tax Act 1961. This scheme offers the investors higher returns in case of long term investment in comparison to other tax-saving investment plans. ELSS incorporates all the merits of capital appreciation with tax reductions making the scheme lucrative for individuals aiming to reduce their tax burden as well as capital formation.
Benefits of ELSS for tax-saving.
● As per the rules stated by the Income Tax Department, all the investments made through ELSS Scheme are eligible for tax deductions under section 80C of Income Tax Act in the year 1961. This scheme offers the investors to claim tax rebate up to Rs 1,50,000 and collect up to Rs 46,800 a year in taxes by contributing in the ELSS mutual funds in India.
● In this scheme, one can retrieve their money only after the duration of 3 years as this scheme comes up with a lock- in a period of 3 years.
Top ELSS Funds
List and review of the best-performing ELSS funds:
In this comprehensive guide, we will discuss some of the top ELSS Funds 2023.
Fund Name | 3 Year Return | Expense Ratio |
SBI Long Term Equity Fund | 25.7% | 1.69 |
HDFC ELSS Tax Saver Fund | 25.7% | 1.75 |
TATA ELSS Tax Saver Fund | 19.2% | 1.87 |
Mahindra Manulife ELSS Fund | 22.3% | 2.26 |
Kotak ELSS Tax Saver Scheme | 21.3% | 1.80 |
Bank of India Tax Advantage Fund | 23.3% | 2.27 |
Canara Robeco ELSS Tax Saver Fund | 19.3% | 1.75 |
Bandhan ELSS Tax Saver Scheme | 27.3% | 1.79 |
Historical returns of popular ELSS schemes
● There are some popular ELSS schemes which exhibited commendable historical returns on investments. These are Axis Long Term Equity Fund, Aditya Birla Sun Life Tax Relief, Mirae Asset Tax Saver Fund and so on.
● These popular ELSS schemes offer higher return on investments averaging around 12% to 15% in recent years.
ELSS vs. Other Tax-Saving Instruments
Comparing ELSS with PPF, NSC, and other tax-saving options
Let's dig deep into ELSS vs PPF, NSC and other tax-saving options:
● ELSS scheme offers higher returns through the form of equity investment with a three year lock in period.
● Public Provident Fund(PPF) and National Savings Certificates(NSC) come with fixed returns with longer lock-ins of 15 years for PPF and 5-10 years in case of NSC.
● The flexibility of the ELSS scheme and its potential for capital formation make it most appropriate for wealth accumulation in the long run though it has some market risks.
● In contrast, PPF and NSC provide fixed returns and have lower market risk.
● Investors and individuals should research risk tolerance, return expectation and investment opportunities when selecting among ELSS, PPF, NSC and other tax saving options keeping in mind their financial goals and preferences.
Industry Statistics
In recent years, ELSS fund performance has showcased significant inflows due to its dual financial assistance in the form of tax saving and wealth creation. Going by the recent trends, it can be seen that the popularity of ELSS funds has immensely increased due to its higher returns in comparison to the traditional investment instruments like PPF, NSC and other tax saving options. ELSS funds have consistently outshined conventional tax saving options which in turn become a reason for attraction to an increasing number of investors.
Investing for tax efficiency requires taking right decisions aligned with your economical goals. ELSS funds provide a unique mixture of tax facilities and market exposure, making them a lucrative choice for investors looking for enhancement in their tax saving strategies while taking part in the ever widening equity markets. As you are entering the vivid world of stock market, you must consider the reliability of top ELSS funds in India, make a comparison with other conventional tax saving options and always stay updated on the recent industry statistics so that you can make the most correct decisions for your investment choice.
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