Tax Payers Love these 10 Benefits of ELSS – Returns, Lock-In, Tax Free & more

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In India, there are bunch of financial instruments in which money can be parked to claim tax deductions under section of 80C of the Income tax act. Although the advantages of investing for a long term cannot be emphasized more, there is an investment gem for tax payers – Equity Linked Savings Scheme – ELSS.

ELSS stands out in comparison to other tax saving instruments and is recommended for everyone. As the name suggests, ELSS is the only tax saving option with significant equity exposure.

So what are the benefits of ELSS funds?

Let’s get to know:

Highest Returns: ELSS is one of the very few investment products promises to beat the inflation, when invested in funds with a proven track record. Few of the top CRISIL ranked funds which has given highest returns are:

Name of Fund1 Year (% Return)2 Year (% Return)3 Year (% Return)CRISIL Ranking as on Dec-2016
(Source: CRISIL Website)
DSP Black Rock Tax Saver Fund (G)36.211.926.61
Birla Sun Life Tax Plan (G)21.17.124.51
Birla SL Tax Relief 96 (G)22.17.725.52
Kotak Tax Saver - Regular (G)32.9825.62
L&T Tax Advantage (G)31.99.623.32
Sundaram Tax Saver (G)35.49.723.83
Reliance Tax Saver (ELSS) (G)31.74.5303
Franklin India Tax Shield (G)22.86.8243
Axis Long Term Equity Fund (G)14.45.124.74

The 3 year return on all ELSS ranges from 23% to 26.5% as on 10th Feb 2017.

This clearly proves that even the average performing equity linked savings scheme fund has tremendous potential to grow your wealth which is higher than any of the guaranteed return tax saving options available in the market.  Check out zero risk investments in India.

Over years equity as an asset class has proven to be beat the inflation.

Dual benefits – tax saving and grow money: ELSS is an open ended equity mutual fund offering twin advantages – saving tax and long term wealth creation.

Shortest lock-in period: ELSS has a lock-in period of 3 years, which is lowest in comparison to other tax savings instruments.

Fundamentally, this 3 year period has advantage to the involved entities i.e. investor and fund manager. Both of them have necessary time to counter market volatility by assessing the risk. Since ELSS invests most of the corpus in equities, the investor has an edge to generate higher returns. And this benefit has been proven to beat inflation as shown in the above table. Note that 3 years starts from the day respective units are allotted and not from the day you start making investment.

So if anyone is planning for retirement or create wealth for child’s education 3 years ahead, then ELSS is worth recommended.

Read about high risk – high return investments in India.

Tax Saving: Investments made through ELSS funds qualify for tax deduction under section 80C of income tax act. At the highest tax bracket, Rs. 46,350 can be saved when investor plans to maximize the section 80C benefit.

Multiple funds to choose from: There are multiple ELSS funds available in the market. So investor gets multiple funds to compare and invest.

Ease of investment: Investor gets two options to invest in ELSS – lumpsum or SIP. Although lumpsum is not recommended as there is no option for purchase cost averaging and beat volatility. However SIP mode i.e. at a regular interval helps in disciplined investment approach. And most importantly risk can be tackled as you can stop yourself from entering into the downward moving market at the wrong time.

100% tax free returns: There are many tax free investment products whose returns are taxable. But this is not the case with ELSS, as the dividends and long term capital gain is completely tax free.

Free insurance cover: Many mutual funds companies have been recently launching schemes offering free life insurance cover with no additional cost. Premium is bourne by the MF company. The cover normally a certain % of the SIP account. In an event of demise of the investor, the insurance cover shall be used to pay the SIP amount. However there is a cap on insurance cover which is less than 20 lacs. Although small, insurance linked funds are worth to look at, if you do not have insurance policy.

No cap on investment amount: You can invest in ELSS through lump sum or SIP returns. And there is no ceiling on the upper limit on the investment amount. It basically means that an individual can invest beyond the Rs. 1, 50,000 limit.

Ease of performance tracking: Every month the AMC releases the portfolio in which the fund has invested. This helps investors to regularly track the list and type of stocks their money is invested in, sectors, and exposure in debt and cash.

Although appetite risk is a crucial factor separating ELSS investors. According to Association of Mutual Funds on India (AMFI), MF industry has been adding average 6.19 lacs SIP accounts each month; which is a huge number making ELSS a definite addition into the investors kitty.

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