ELSS /

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What are ELSS Funds?

Equity Linked Savings Schemes (ELSS) are mutual funds that allocate a significant portion of their assets to equity and equity-related instruments. These funds are best for tax-saving schemes. Section 80C of the Income Tax Act lets you deduct up to ₹1,50,000 from your taxable income every year.

ELSS funds are equity-oriented investments with a mandatory minimum three-year lock-in period. Many taxpayers have increasingly turned to ELSS schemes to benefit from these tax advantages in recent years. By investing in ELSS, you can claim a tax exemption on the invested amount up to the limit of ₹1,50,000.

Any income generated from these investments after the three-year lock-in period comes in the Long-Term Capital Gains (LTCG) categories. This income will be taxed at a rate of 10% if it exceeds ₹1,00,000 in a financial year.

Primary Features of an ELSS Mutual Fund:

Let's discuss the tax benefits of investing in an ELSS mutual fund.

Dual Benefit

ELSS (Equity Linked Savings Scheme) funds are unique in the Indian mutual fund market. You can claim annual tax deductions of up to ₹1,50,000. This means potential tax savings of about ₹46,800 for top-bracket taxpayers. ELSS funds can also invest in equity markets, which may yield high returns over time.

Inflation-Beating Returns

One significant advantage of ELSS funds is their ability to outperform inflation. Unlike Fixed Deposits and savings accounts, ELSS investments can yield high, long-term returns that outpace inflation. This makes them a good choice for building wealth over time. Instead, savings accounts and fixed deposits sometimes fall short of the inflation rate.

Professional Management

Experienced fund managers with a track record of success manage ELSS mutual funds. These professionals research and analyze to help make smart investments and aim to beat benchmark returns. They help maximize investor wealth and assess the risks of each investment.

Shortest Lock-in Period

Of all tax-saving instruments under Section 80C, ELSS mutual funds have the shortest lock-in period: three years. This brief lock-in encourages long-term thinking in investors, helps preserve and grow their wealth, and offers tax benefits.

ELSS mutual funds are a great investment. They save on taxes and may yield high returns. Experts manage them and have a reasonable lock-in period. If you don't have expertise, please contact the expert MF distributors or send a direct short inquiry note for ELSS, and they will contact you.

What is the Working Process of the ELSS Fund?

ELSS (Equity Linked Savings Scheme) mutual funds are tax-saving investments. They focus on equity markets. Here's how they work:

Investment Structure

Professional mutual fund managers manage the ELSS schemes that investors fund. These managers invest in diverse stocks from various sectors and market caps (large, mid, and small). The main goal of ELSS is to optimize your long-term capital appreciation.

Tax Benefits

A key feature of ELSS funds is their tax deduction under Section 80C of the Income Tax Act of 1961. You can get a considerable tax deduction on investments up to ₹1.5 lakh per year. This can save your highest tax bracket up to ₹46,800 in taxes.

Lock-in Period and Returns

ELSS funds have a mandatory three-year lock-in period. You cannot redeem their investments during this time. This lock-in encourages long-term investing for good profit. It allows the funds to grow and may deliver returns that outpace inflation. After the lock-in period, the tax authorities will tax any gains over ₹1 lakh at 10% as Long-Term Capital Gains (LTCG).

ELSS Calculator

An ELSS calculator can help you understand your potential tax savings and returns. This tool estimates tax savings and returns using the investment amount, tax slab, and 3-year lock-in.

Available ELSS Investment Options

You can choose between two main investment methods to invest in ELSS Funds:

Systematic Investment Plan (SIP) : Allows for regular investments over time, which helps in averaging costs.
Lumpsum Investment : Involves investing a large amount at once.

You can choose between two main investment methods to invest in ELSS Funds:

How Can I Invest in ELSS Funds?

If you want to invest in ELSS, you can find many ways to do so. If you have some experience using demate accounts and knowledge about their privacy.

Complete KYC : Ensure you have completed your KYC by submitting proof of your PAN and address.
Choose a Method :
- Online Platforms : Use mutual fund websites or investment apps.
- Demat Account : Invest directly if you have a Demat account.
- Distributor : Get help from a mutual fund agent.

If you want to invest in your own, Follow these Steps:

Select an ELSS Fund : Research and pick a fund that suits your goals.
Investment Type : You can decide whether to invest in a lump sum scheme or through a Systematic Investment Plan (SIP).
Fill Out the Form : Complete the application form with your details.
Make Payment : Pay online or via cheque.
Monitor Your Investment : Keep an eye on how your fund is performing.
Redeem After 3 Years : After the lock-in period, decide whether to withdraw or continue investing.

Here is a simple process, but if you have any questions, you can ask any advisor or take a direct consultant from our advisor directory.

Best ELSS Funds to Invest In

Here are four additional ELSS funds that are worth considering for investment as of January 2025 reports:

1. Quant ELSS Tax Saver Fund

10-Year Annualized Return: 20.88%
Expense Ratio: 0.59%
SIP Returns (10 years): ₹41.94 lakh on ₹10,000/month
Lock-in Period: 3 years
Known for consistently high returns and active management.

2. Bank of India ELSS Tax Saver Fund

10-Year Annualized Return: 17.55%
Expense Ratio: 0.84%
SIP Returns (10 years): ₹35.22 lakh on ₹10,000/month
Lock-in Period: 3 years
Offers stability with reasonable returns.

3. Motilal Oswal ELSS Tax Saver Fund

10-Year Annualized Return: 24.86%
Expense Ratio: 1.83%
Strong performance with good growth potential.
Lock-in Period: 3 years
Focuses on high-growth stocks.

4. DSP ELSS Tax Saver Fund

10-Year Annualized Return: 16.72%
Expense Ratio: 0.74%
SIP Returns (10 years): ₹32.79 lakh on ₹10,000/month
Lock-in Period: 3 years
Balances growth and stability.

5. Bandhan ELSS Tax Saver Fund

10-Year Annualized Return: 16.17%
Expense Ratio: 0.66%
SIP Returns (10 years): ₹31 lakh on ₹10,000/month
Lock-in Period: 3 years
Focuses on long-term growth with a diversified portfolio.

6. Mirae Asset ELSS Tax Saver Fund

3-Year Annualized Return: Approximately 20.22%
A newer fund that has shown strong performance in recent years.

7. ICICI Prudential Long Term Equity Fund (Tax Saving)

10-Year Annualized Return: Approximately 18.75%
Expense Ratio: 1.88%
A reputable fund house manages this fund, which has a diverse portfolio.
Lock-in Period: 3 years

8. Axis Long-Term Equity Fund

10-Year Annualized Return: Approximately 19.50%
Expense Ratio: 0.73%
Known for its strong performance and consistent management style.
Lock-in Period: 3 years

9. Franklin India Tax Shield Fund

10-Year Annualized Return: Approximately 15.95%
Expense Ratio: 1.50%
This fund has a long history and offers a balanced approach to equity investment.
Lock-in Period: 3 years

10. Tata India Tax Savings Fund

10-Year Annualized Return: Approximately 16.00%
Expense Ratio: 1.09%
Focuses on long-term capital appreciation with a diversified equity portfolio.
Lock-in Period: 3 years

Summary

ELSS mutual funds are great for tax savers. They may also provide high returns through long-term equity investments. With professional management and a short lock-in period, they offer flexibility and growth for long-term goals.

If you have questions, contact expert mutual fund distributors or advisors. They can help you invest in ELSS funds.

FAQs

What is an ELSS mutual fund?

What are the tax benefits of investing in an ELSS fund?

How long is the lock-in period for ELSS funds?

Can I invest in an ELSS fund through SIP?

Are there any exit loads associated with ELSS funds?

How do I choose the best ELSS mutual fund?

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