ELSS (equity linked savings schemes) mutual funds provide investors with the dual benefit of tax deductions and long-term wealth creation. These come with a lock-in period of three years, which is the shortest among all tax-saving instruments. ELSS are preferred by investors since these have the potential to generate the highest returns among all 80C options.
Read More: ULIPs-vs-ELSS; Comparison of ELSS funds with ULIPs
Here, we will provide a brief explanation on ELSS funds for beginners and share top 5 fund recommendations in the ELSS category.
What are ELSS funds?
ELSS funds or Equity Linked Savings Scheme are equity funds that invest the corpus collected from investors, mainly in equity or equity-related instruments. ELSS are primarily tax saving schemes as investors can avail a tax exemption of up to Rs. 1.5 lakhs from their yearly taxable income as per Section 80C of the Income Tax Act.
ELSS mutual funds follow an asset allocation strategy comprising 65% of equity and equity-linked securities, such as listed stocks. Some funds also invest in fixed-income securities to a certain extent.
Reasons to invest in ELSS funds
Here’s why investors can consider investing in ELSS funds:
- Tax benefits: ELSS funds provide tax benefits under Section 80C of the Income Tax Act, making it an attractive investment option for tax-saving purposes.
- Long-term investment: ELSS funds have a lock-in period of 3 years, encouraging long-term investments and discouraging premature withdrawals.
- Diversification: ELSS funds invest in a variety of stocks, helping to reduce risk by spreading investments across different industries and sectors.
- Potential for higher returns: ELSS funds invest primarily in equity, providing the potential for higher returns compared to other tax-saving investment options.
- Professional management: ELSS funds are managed by professional fund managers who have expertise in selecting the best stocks for investment, providing the potential for better returns compared to individual stock investing.
Top 5 ELSS funds to invest in 2023
Axis Long Term Equity Fund -ELSS Fund
About the Fund
The objective of the scheme is to generate regular long-term capital appreciation through a diversified portfolio of equity and equity-related securities. It primarily invests in companies that have a strong growth & sustainable business model.
| Inception Date | 29th December 2009 |
| Benchmark Name | Nifty 500 TRI |
| Fund Manager | Jinesh Gopani |
| Expense Ratio | 1.60% |
| Fund type | Open-ended |
| Risk | Medium-High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 11.15% | -11.16% | 11.49% | 10.49% | 16.15% |
DSP Tax Saver Fund
About the Fund
This scheme is ideal for Investors who are looking to fetch higher returns by investing for at least 3 years combined with tax-saving benefits. The scheme’s objective is to achieve long term capital appreciation by investing mainly in equities across primary and secondary markets.
| Inception Date | 18th January 2007 |
| Benchmark Name | Nifty 500 TRI |
| Fund Manager | Mr. Kaushal Maroo and Mr. Rohit Singhania |
| Expense Ratio | 1.75% |
| Fund Type | Open-ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 14.76% | 5.62% | 19.10% | 12.78% | 16.44% |
ICICI Prudential Long Term Equity Fund (Tax Saving)
About the Fund
This tax plan aims to generate long-term capital growth using a diversified portfolio consisting mainly of equity and equity-related securities. With a well-researched and concentrated portfolio, the scheme aims to invest across different market capitalisation sectors and has a mandatory lock-in period of 3 years. Investors can claim a tax deduction of up to Rs. 1,50,000 under Section 80C of the Income Tax Act.
| Inception Date | 19th August 1999 |
| Benchmark Name | Nifty 500 TRI |
| Fund Manager | Mr. Harish Bihani |
| Expense Ratio | 1.92% |
| Fund Type | Open ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 13.68% | 4.07% | 17.54% | 12.17% | 14.84% |
Mirae Asset Tax Saver Fund
About the Fund
This ELSS fund aims to earn long-term capital growth for investors by setting up a diversified portfolio primarily consisting of equity and equity-related instruments. The scheme has a statutory lock-in period of 3 years. Through ELSS funds, investors can aim for long term wealth accumulation combined with the benefit of tax saving. These investors are eligible for a tax deduction of up to Rs 1.5 lakhs as per Section 80C of the Income Tax Act 1961.
| Inception Date | December 28, 2015 |
| Benchmark Name | Nifty 500 Total Return Index |
| Fund Manager | Neelesh Surana |
| Expense Ratio | 1.72% |
| Fund Type | Open-ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 12.75% | 1.94% | 19.81% | 14.34% | – |
IDFC Tax Advantage (ELSS) Fund
About the Fund
The objective of the IDFC tax advantage ELSS scheme is to build a diversified portfolio of stocks belonging to companies that have strong fundamentals with reasonable valuations. The scheme mostly invests in equities and equity-related instruments with a small portion of the portfolio allocated towards debt & money market instruments. The scheme has a statutory lock-in period of 3 years to avail benefits of tax savings.
| Inception Date | 26th December 2008 |
| Benchmark Name | S&P BSE 500 Total Return Index |
| Fund Manager | Daylynn Gerard Paul Pinto |
| Expense Ratio | 1.94% |
| Fund Type | Open ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 15.26% | 7.00% | 24.32% | 12.71% | 16.75% |
Kotak Tax Saver Fund
About the Fund
Kotak Tax Saver fund aims to fetch long-term capital appreciation through a diversified portfolio comprising equity and equity-related securities. Through this investment, investors can avail of income tax deduction of up to Rs. 1.5 lakhs under Section 80C depending on prevailing tax laws. The fund has a statutory lock-in period of 3 years to ensure wealth accumulation combined with tax benefits.
| Inception Date | 23rd November 2005 |
| Benchmark Name | NIFTY 500 Total Return Index |
| Fund Manager | Harsha Upadhyaya |
| Expense Ratio | 1.97% |
| Fund type | Open-ended |
| Risk | Very High |
Historical Returns of the Fund (annualised)
| 6-month | 1-Year | 3-Year | 5-Year | 10-Year |
| 17.96% | 7.87% | 19.26% | 13.22% | 14.63% |
Who can Invest in ELSS funds?
Any individual with an income can invest in Equity-Linked Saving Scheme (ELSS) funds. There are no restrictions on this investment based on age, income, or occupation. However, investors must consider their personal financial goals and risk tolerance before investing in ELSS funds, as they are equity-based investments and can be subject to market volatility.
Ways to Invest in ELSS funds
One can invest in Equity-Linked Saving Scheme (ELSS) funds through various channels such as a bank, a mutual fund distributor, or directly with a mutual fund company. One can also opt for systematic investment plans (SIP) or lump-sum investments.
To invest in ELSS funds easily, investors can download the Fisdom app on their smartphone.
Things to consider before investing in ELSS funds
Here are some important aspects to consider before investing in ELSS funds:
- Personal financial goals: The investor should know what he/she is trying to achieve with the investment
- Risk tolerance: Check the comfortable level with the potential fluctuations that may arise in investment value.
- Investment time horizon: How long can one stay comfortably invested for.
- Fund performance: Check historical performance of the funds being considered.
- Fund expenses: Consider the fees charged by the fund, such as management fees and operating expenses.
- Diversification: Consider how the ELSS fund fits into the overall investment portfolio.
Conclusion
Like all mutual fund investments, ELSS comes with many benefits and disadvantages. An investor must try to align personal investment goals with the fund objective. It is important to carefully consider individual risk appetite and investment horizon against the scheme’s risk levels and investment duration. Investments made after conducting basic research can help investors get maximum benefits.
Incentives like tax savings, the benefit of small monthly investments, and the potential to generate long-term wealth are some of the main reasons why ELSS makes for a good investment choice for new investors.
FAQs
- How do I redeem my ELSS after 3 years?
To redeem your ELSS after the 3-year lock-in period, you can reach out to your agent, broker or do it on your Fisdom app. ELSS redemption can only be done after completing the mandatory 3-year lock-in period. But, if you are not in need of the amount, you can continue to hold your ELSS funds for any number of years.
- Can I invest more than 1.5 lakhs in ELSS?
You can invest in more than Rs 1.5 lakhs but you could claim tax exemption only for a maximum of Rs 1.5 lakh.
- Is ELSS risk free?
ELSS funds are diversified equity funds and have a similar risk as equity funds due to the exposure to equity markets. Apart from the implied equity risk component, ELSS funds come with a three year lock-in period during which the investment cannot be taken out.
- How to invest in ELSS?
To invest in ELSS, you can download the Fisdom app on your smartphone. The app allows a seamless investment process by looking at various fund options, fund performance statistics, investment time horizon, and selecting a convenient mode of investment.
- Can I invest in both PPF and ELSS?
The net tax benefit under Section 80C of the Income tax act is Rs. 1.5 lakhs. Therefore, even if you invest in both PPF and ELSS, you will still get a maximum tax deduction of Rs. 1.5 lakhs. Depending on your investment goals, you can divide the investment among PPF and ELSS or invest in either of these options.
