A Guide on Best ELSS Funds | Equity Linked Saving Scheme |Tax Saving Mutual Funds | 80c tax benefit
3A Guide on Best ELSS Funds | Equity Linked Saving Scheme |Tax Saving Mutual Funds | 80c tax benefit
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ELSS are tax saving mutual funds. ELSS is Equity Linked Savings Scheme that provides tax benefits under section 80. It is a type of mutual fund where lock-in period is 3 years. In this video, we learn - what is ELSS, advantages of ELSS, how it compares with PPF, NPS, FD, NSC and other tax saving investments under section 80C. Should we invest in a Mutual Fund SIP or Lumpsum?
The ELSS or Equity Linked Saving scheme continues to be a dominant category in the mutual fund space with AUMs of over 1,35,000 crores across 1.27 crore folios which makes the ELSS, the largest category in terms of folios.
This video will help you, better understand this category as we look to answer some of the more common questions on ELSS.
1. WHAT IS AN ELSS?
ELSS is an acronym for Equity Linked Savings Scheme.
1.It is an open-ended mutual fund where at least 80% of the assets are invested in stocks
2.These schemes help save taxes by providing benefits under Section 80C of the Income Tax Act
3.These schemes have a lock-in period of three years
So by construct, an ELSS competes with other instruments like the PPF, NPS, a tax saving fixed deposit, national savings certificate, etc. for a share of the tax conscious investor’s wallet. But unlike these other instruments which are mostly fixed income products an ELSS is a pure-play equity product which means, it is labeled more as a wealth creation product rather than a savings product. Much like all equity funds, the ELSS does follow a volatile path to progress ..
2. TAX BENEFITS
Investments made in an ELSS fund are eligible for tax benefits under Section 80C of the Income Tax Act. While there is no upper limit to the amount that can be invested a maximum of 1.5 lakh, is what becomes eligible for a tax break per the Income Tax rules
In fact, this 1.5 lakh is an aggregate number which means this Section 80C deduction includes your investment in other tax-saving instruments like provident fund, national savings certificate, life insurance premium, and a few more product
3. LOCK-IN PERIOD
All tax-saving investment products have a lock-in period. The ELSS category has the shortest lock-in period .. with all funds within this category requiring a minimum holding period of 36 months before these units can be redeemed
4. RETURNS
An ELSS is a mutual fund and like all mutual funds, returns are not guaranteed in these funds. And while this “non-guarantee” part may leave a few people saddened an examination of the top schemes shows that the category has done extremely well over many years. In fact, as a matter of comparison, we benchmarked the ELSS fund performances with their typical benchmarks and found that these funds have been handsomely beating the indices when we look at returns over a long period of time.
Investing in ELSS funds should be done with a long-term perspective which not only helps build wealth but also helps investors in riding the volatility that is often associated with market-linked investments.
5. CHOICE OF FUNDS
There are no index funds in the ELSS category. which means .. all funds are actively managed and would, therefore, have their own peculiarities in terms of the investing style - which can be growth, value or blended, the proportion of equity and debt, the level of diversification and concentration in these funds and of course, the market capitalisation bias with some funds focusing on large caps while some other funds active in the mid and small-cap space In numbers, the ELSS category has only 33% of its assets in mid and small caps ..
6. TAXATION
Funds in the ELSS category have to be held for at least 3 years .. and therefore any profits made on the sale of those units will be deemed as LTCG or long-term capital gains. Long term capital gains attract a tax of 10% which is over and above an aggregate limit of 1 lakh rupees
When compared to other tax-saving financial products, the ELSS is somewhere in the middle
At one end are the tax-saving fixed deposits where the interest earned is taxable as per your income tax slab which can be as high as 30% and at the other end is an instrument like PPF which in spite of a 15-year lock-in offers a tax-free interest rate.In that context,
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DISCLAIMER : This video is only for educational purpose on