As an investor, you are probably looking for opportunities that can help you grow your wealth, earn regular returns, and reduce your tax liabilities. As of today, there are plenty of investment options easily available but many of them require you to pay heavy taxes.
This is where ELSS mutual funds come in. They offer growth and help you save up on taxes.
What Are ELSS Funds?
ELSS funds are equity-focused mutual funds that invest a part of their portfolio in equities or equity-related instruments. ELSS is a tax-saving scheme because they allow you to claim a deduction of up to Rs 150,000 from your taxable income under Section 80C of the Income Tax Act.
ELSS funds come with a mandatory lock-in period of three years which makes it a good option if you are looking for long-term investment and tax savings.
By investing in ELSS, you can reduce your taxable income by Rs 150,000. Any gains you earn after the three-year lock-in period will be classified as LTCG, and if your income exceeds Rs 1 lakh, it will be taxed at 10%.
Here is a list of top performing ELSS funds in India:
|
Scheme Name
|
AUM (Crore) |
1 Year Returns (%) |
3 Years Returns (%) |
5 Year Returns (%) |
10 Years Returns (%) |
Since Launch Ret (%) |
| Motilal Oswal ELSS Tax Saver Fund Reg Gr |
4194.64 |
68.8 |
26.53 |
26.28 |
- |
19.31 |
| SBI Long Term Equity Reg Gr |
28732.51 |
51.82 |
24.64 |
26.93 |
16.1 |
12.79 |
| ITI ELSS Tax Saver Reg Gr |
411.63 |
51.75 |
18.12 |
- |
- |
20.81 |
| HSBC ELSS Tax saver Fund Reg Growth |
4485.23 |
50.77 |
18.79 |
22.01 |
15.32 |
15.19 |
| JM ELSS Tax Saver Fund Gr |
188.7 |
49.25 |
19.68 |
23.78 |
17.54 |
10.43 |
| DSP ELSS Tax Saver Reg Gr |
17770.63 |
46.5 |
18.91 |
23.74 |
17.46 |
16.12 |
| HSBC Tax Saver Equity Gr |
0 |
45.23 |
17.01 |
21.58 |
14.59 |
13.49 |
| Quant ELSS Tax Saver Gr |
11682.8 |
44.96 |
20.76 |
35.12 |
23.27 |
16.23 |
| BARODA BNP PARIBAS ELSS Tax Saver Gr |
988.18 |
44.92 |
15.64 |
20.04 |
14.36 |
12.9 |
| Bank of India ELSS Tax Saver Reg Gr |
1485.63 |
44.85 |
17.43 |
27.18 |
17.9 |
19.99 |
To invest in the Motilal Oswal ELSS Tax Saver Fund, the minimum required amount is Rs 500 for both lump sum investments and Systematic Investment Plans.
Who Should Invest in ELSS Mutual Funds?
Salaried Individuals: ELSS investments offer tax benefits under Section 80C. Options like Unit Linked Insurance Plans also provide tax deductions but they come with five-year lock-in periods and have a lower return potential.
The Public Provident Fund also locks your investment for 15 years. ELSS has the shortest lock-in period of three years and it is a more flexible option.
First-time Investors: If you're new to investing, ELSS is the perfect way to get started. In addition to tax savings, it introduces you to equity investments and mutual funds.
Equity investing requires patience and discipline, as the stock market can fluctuate in the short term, which may lead you to make a few wrong decisions and ultimately lose out on your funds.
Long-Term Investors: With the mandatory three-year lock-in, ELSS ensures you remain invested for a minimum period which gives your investment time to grow. However, these funds perform even better when held beyond the lock-in period.
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How to invest in ELSS funds?
You can invest in ELSS funds through two main methods: Systematic Investment Plan (SIP) or lump-sum.
With SIP, you invest a fixed amount at regular intervals (monthly, quarterly, etc.), which helps spread out the investment over time.
With the lump-sum method, you can invest a large amount all at once in the ELSS fund. Both methods have their own advantages depending on your financial goals and market conditions.
Risks involved when Investing in ELSS Funds
In the case of ELSS funds, there is a mandatory three-year lock-in period, which can lead to a liquidity risk as you won't be able to redeem these funds as and when you require.
Factors such as economic downturns, political events, or shifting market sentiment can negatively impact stock prices. Since ELSS funds must invest at least 80% of their assets in equities, they are inherently exposed to market fluctuations, which makes the portfolio vulnerable to these risks.
Conclusion
ELSS is a great investment option if you are looking to grow your funds without paying heavy taxes. Investors have the flexibility to choose between a lump sum investment or a SIP, depending on their financial goals.
Another advantage of ELSS is that there is no cap on the minimum or maximum amount you can invest. These features make ELSS funds a perfect choice for saving taxes and building wealth.
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