Do you know investing and tax saving can go hand in hand? Yes, a Tax Saving Fund or Equity Linked Savings Scheme (ELSS) fund is a mutual fund scheme that invests primarily in equity or equity-related instruments. Besides this, they also offer tax-deduction of up to Rs. 1,50,000 from your annual income.
What if there is a scheme that has both the features- wealth creation and tax saving. This is where Tax Saving mutual funds or ELSS funds come in handy. Let us understand in detail everything about these funds.
Tax Saving funds are also called ELSS funds. ELSS stands for Equity Linked Savings Scheme. As the name suggests, ELSS funds are equity-oriented mutual fund schemes that invest a majority of their corpus in equity or equity-related instruments. These funds also provide an added benefit of tax deduction under section 80C of the Income Tax Act. Investors can save tax up to Rs. 1,50,000 in a financial year.
Tax Saving mutual funds have a mandatory lock-in period of 3 years. This means that the investors cannot redeem or withdraw money or units from these funds before the end of 3 years from the date of investment. These funds work as diversified or multi-cap funds as they invest across large-cap, mid-cap, and small-cap companies. However, their primary focus remains on investing in large-cap companies.
Tax saver mutual funds are becoming very popular amongst investors due to their numerous benefits. Some key benefits of tax saver mutual funds or ELSS are as follows:
The main feature of an ELSS or a tax saver fund is its dual benefit of wealth creation and tax saving. But there are many other advantages of these funds that are discussed here.
The most crucial part of investing is the tax treatment on various instruments. Since ELSS funds are predominantly equity funds and have a 3 years lock-in, any returns on these funds are treated as long term capital gains (LTCG).
Long term gains up to Rs. 1,00,000 are exempt from tax. Gains over Rs. 1,00,000 are taxable at 10% under the provisions of the Income Tax Act. There is no indexation benefit available in this regard.
In other words, gains or returns on your ELSS funds of less than Rs 1 lakh are exempt from Income Tax. However, if the gains are more than one lakh, then you are required to pay LTCG tax at the rate of 10 percent without any indexation benefit.
ELSS Fund or Tax Saver funds are equity-oriented mutual funds. Investors looking to take some exposure in equity markets and create long-term wealth, at the same time can invest in these funds. Investors, whose income is taxable and want to avail tax benefits, also can invest in these funds.
These funds are the most beneficial for investors that belong to higher tax brackets. Individuals in the highest tax bracket of 30% can benefit from tax-saving funds, as they can effectively save up to Rs. 46,800 worth of taxes including cess.
Here are some advantages of investing in ELSS mutual funds:
Here are some of the top ELSS mutual funds that investors can consider investing in 2023:
1. Axis Long Term Equity Fund
Axis Long Term Equity Fund is a diversified equity linked saving scheme (ELSS) that invests in a mix of large caps and select midcaps.
Particulars | Details |
Fund manager | Mr. Jinesh Gopani |
Launch date | 9th Dec 2009 |
Minimum SIP investment | Rs. 500 |
Expense ratio | 0.85% |
Risk | Very High |
The returns provided by the fund as of 17th October 2021 are tabled below
Period | 1 yr | 2 yr | 3 yrs | 5 yrs | 10 yrs |
Returns | 5.97% | 3.59% | 18.24% | 8.84% | 15.79% |
2. DSP Tax Saver Fund
This is an Equity Linked Savings Scheme (ELSS). Investing in this fund allows you to avail a tax deduction on up to Rs 1.5 lakh annually under Sec 80C of Income Tax Act 1961. It invests in established as well as emerging companies across market caps to provide a combination of growth & stability.
Particulars | Details |
Fund manager | Mr. Rohit Singhania |
Launch date | 18th Jan 2007 |
Minimum SIP investment | Rs. 500 |
Expense ratio | 0.80% |
Risk | Very High |
The returns provided by the fund as of 17th October 2021 are tabled below
Period | 1 yr | 2 yr | 3 yrs | 5 yrs | 10 yrs |
Returns | 10.11% | 11.20% | 28.02% | 12.50% | 16.23% |
Well, that depends on an individual’s total income. If an individual is in the 30% slab rate, the maximum tax (including cess) amount he/she can save is Rs 46800.
Yes, tax saver or ELSS mutual funds do help in saving tax. The principal amount is eligible for deduction under the Income Tax act subject to an upper cap limit of Rs. 1,50,000.
Yes. If you are investing in ELSS funds, then Rs 500 is the minimum amount that needs to be invested.
No. There is a lock-in period of 3 years if you are investing in tax saver funds. So, you can redeem your investments only after the 3 year period ends.
No. there is no compulsion to redeem your investments after the completion of 3-year lock-in. To get the maximum benefit out of your investments, it is advisable that you remain invested for a longer period.
The minimum amount that is required to invest in ELSS funds is Rs. 500. However, there is no maximum limit to invest in such funds. One can invest any amount they like. But it should be noted that the income tax benefit is only up to Rs. 1,50,000.
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