ELSS

What is ELSS?

Equity Linked Savings Scheme (ELSS) is a type of open-ended equity mutual fund eligible for tax deductions under Section 80C of the Income Tax Act, 1961. These funds invest at least 80% of their corpus in equity and equity-related instruments. The amount invested (up to ₹1.5 lakh annually) is eligible for tax deduction, reducing your taxable income.

Benefits:

·       Tax deductions: up to 1.5 lakh under section 80C

·       Lowest lock in period of only 3 years

·       Very high return potential as most of the money will be invested in equity

·       Tax free gains: gain up to 1 lakh a year is tax free.

·       Disciplined investment: ELSS encourages long term financial planning via SIPs

·       Professional management is done by seasoned fund managers who invest in diverse assets.

Lock-in period:

As compared to the PPF (15 years) or the NSC (5 years), ELSS has a lock-in period of only 3 years, making it more liquid than the rest. Though one cannot redeem the investments before 3 years, the short tenure offered by ELSS is ideal for the medium term.

Returns - A snapshot!

FUND	3 YEAR RETURN	5 YEAR RETURN
Quant Tax Plan	29.6%	23.3%
Mirae Asset Tax Saver Fund	17.4%	16.5%
Canara Robeco Equity Tax Saver	16.8%	15.2%
Axis Long Term Equity Fund	11.1%	10.3%
Kotak Tax Saver Fund	15.6%	13.4%

Tax treatment:

·       Capital gains tax: LTCG up to 1 lakh a year is tax free. Above 1 lakh is taxable at 10% and there is no indexation

·       Dividends is taxed as per the income slab post the finance act of 2020

Who is it suitable to?

·       People who can wait 3 years

·       Young professionals who are beginning to plan on tax

·       Salaried employees seeking better post tax returns

·       Investors looking to transition from traditional instruments like the FDs, or PPF to equity