Investing for your future can be daunting, but it doesn't have to be. ELSS equity mutual funds are a great way to save for your long-term goals while also getting tax benefits. ELSS stands for Equity Linked Savings Scheme. These funds invest primarily in equities, which means that they have the potential to grow your money over time. But ELSS funds also come with a tax benefit: you can claim a deduction of up to ₹1.5 lakhs from your taxable income for investing in ELSS funds.
So, if you're looking for a way to save for your future and get tax benefits, ELSS equity mutual funds are a great option. But before you invest, it's important to do your research and choose a fund that's right for you. In this blog, we'll discuss everything you need to know about ELSS equity mutual funds, including how they work, how to choose a fund and the tax benefits you can enjoy.
What are ELSS Mutual Funds?
ELSS mutual funds are a type of equity mutual fund that invests primarily in equity shares of companies. The main objective of ELSS mutual funds is to provide tax benefits to investors under Section 80C of the Income Tax Act, 1961. ELSS mutual funds have a lock-in period of three years, which means that investors cannot redeem their units before the completion of three years.
How do ELSS Mutual Funds Work?
ELSS mutual funds work like any other mutual fund. The fund manager pools money from investors and invests it in equity shares of companies. The returns generated by the fund are then distributed among the investors in proportion to their investment. However, the major difference between ELSS mutual funds and other mutual funds is the tax benefit they offer.
Investors can claim a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961, by investing in ELSS mutual funds. This means that if an investor invests Rs. 1.5 lakh in ELSS mutual funds, they can claim a tax deduction of Rs. 1.5 lakh from their taxable income.
Benefits of Investing in ELSS Mutual Funds
There are several benefits of investing in ELSS mutual funds:
- Tax Benefits: As mentioned earlier, investors can claim a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961, by investing in ELSS mutual funds.
- Higher Returns: ELSS mutual funds invest primarily in equity shares of companies, which have the potential to generate higher returns over the long term.
- Low Lock-in Period: ELSS mutual funds have a lock-in period of only three years, which is lower than other tax-saving instruments like the Public Provident Fund (PPF) and National Savings Certificate (NSC).
- Diversification: ELSS mutual funds invest in a diversified portfolio of equity shares, which helps in reducing the risk associated with investing in a single company.
How to Invest in ELSS Mutual Funds?
Investing in ELSS mutual funds is easy and can be done in the following steps:
- Choose a Fund: The first step is to choose an ELSS mutual fund that suits your investment goals and risk appetite. You can choose from various ELSS mutual funds offered by different fund houses in India.
- Complete KYC: You need to complete your Know Your Customer (KYC) process by submitting your identity proof, address proof, and PAN card details to the fund house or the registrar.
- Invest: Once your KYC is completed, you can invest in the ELSS mutual fund of your choice either through the fund house's website or through a broker.
Top ELSS Mutual Funds in India
Here are some of the top ELSS mutual funds in India:
- Axis Long-Term Equity Fund:
Axis Long-Term Equity Fund is an ELSS fund with a 3-year lock-in period. The fund aims to generate income and long-term capital appreciation by investing in a diversified portfolio of equities. This fund is managed by Mr. Jinesh Gopani with an asset value of ₹32,325 crores. The fund has annualized return values of 17.92% for 3 years and 16.28% since inception with a very high risk.
- Mirae Asset Tax Saver Fund:
Mirae Asset Tax Saver Fund is an ELSS fund that invests in a diversified portfolio of strong growth companies at reasonable prices. The fund uses a bottom-up approach to investing, focusing on value investing in growth-oriented businesses. This fund is managed by Mr. Neelesh Surana with an asset value of ₹ 16,633 crores. The fund has annualized return values of 26.57% for 3 years and 17.64% since inception with a very high risk.
- SBI Long-Term Equity Fund:
SBI Long Term Equity Fund is an equity-linked savings scheme (ELSS) that offers tax benefits under Section 80C of the Income Tax Act, 1961. The fund has a statutory lock-in period of 3 years. This fund is managed by Mr. Dinesh Balachandran with an asset value of ₹ 14434.37 crores. The fund has annualized return values of 28.15% for 3 years and 15.73% since inception with a very high risk.
- Aditya Birla Sun Life Tax Relief 96:
Aditya Birla Sun Life ELSS Tax Relief 96 is an equity fund that offers tax benefits and long-term capital growth. This fund is managed by Mr. Dhaval Gala, Mr. Atul Penkar, and Mr. Dhaval Joshi with an asset value of ₹ 13991.75 crores. The fund has annualized return values of 13.78% for 3 years and 21.67% since inception with a very high risk.
- ICICI Prudential Long-Term Equity Fund:
ICICI Prudential Long Term Equity Fund (Tax Saving) is an equity fund that invests in stocks and provides tax benefits. The fund aims to generate long-term capital appreciation for investors. This fund is managed by Mr. Harish Bihani with an asset value of ₹ 9,857.69 crores. The fund has annualized return values of 28.12% for 3 years and 18.73% since inception with a very high risk.
Conclusion
ELSS mutual funds offer several benefits like tax benefits, higher returns, low lock-in period, and diversification. So, there you have it! ELSS equity mutual funds are a great way to save for your future while also getting tax benefits. But before you invest, it's important to do your research and choose a fund that's right for you.
Once you've chosen a fund, you can start investing. Remember, ELSS funds are a long-term investment, so don't expect to get rich quick. But if you're patient and invest regularly, you'll be well on your way to reaching your financial goals.
