There are a number of advantages provided by ELSS that make it a viable tax- saving form of investment. Here are our top 10 picks.
Equity Linked Saving Schemes (ELSS) are fast becoming a popular choice for saving and investment. ELSS is a diversified, open-ended Equity Mutual Fund that offers higher returns as well as great tax benefits.
The funds invested in by ELSS primarily revolve around equities and related equity products and these schemes usually come with lock-in periods of 3 years. During a lock-in period, an investor cannot access his funds thereby securing the savings. The investors can exit the scheme by selling it after this period.
The tax benefits offered by ELSS fall under the section 80C of the Income Tax Act and offer tax exemptions of up to Rs. 1.5 Lakhs.
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Advantages of Investing in ELSS
There are a number of advantages provided by ELSS that make it a viable tax-saving form of investment. Firstly, the minimum investment required is low and starts from Rs. 500. This makes ELSS more affordable than Fixed Deposit which requires a huge chunk of money to get a good return. A person in the 30% tax bracket and who invests up to Rs. 1.5 Lakhs in ELSS can save up Rs. 45,000 in tax each year.
ELSS not only provides tax savings, it also instils a sense of discipline when it comes to investing. Monthly investing in ELSS provides an avenue for one to step up their investment and tax planning. The monthly investments provide compounding returns that enable the investor to maximise returns over a period of time.
The returns on ELSS are high enough to beat inflation and are usually around the range of 14% to 16%. The returns from ELSS funds were completely tax-free earlier but as per Budget 2018 a tax of 10% is applicable on long-term gains of over Rs. 1 lakh per this rule, long-term capital gains from ELSS too falls under the ambit of this taxation system.
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Benefits of Equity Linked Savings Scheme
Compared to other tax-saving financial instruments like bank deposits, PPF and NSC investments, ELSS has the lowest lock-in period, i.e., 3 years.
Investors have the option of earning regular income during the lock-in period, by opting for a dividend scheme under ELSS.
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Features of Equity Linked Savings Scheme
Dividend & Growth Options
Investor can choose either the dividend or the growth option under their Equity Linked Savings Scheme. In the growth scheme, the investor will receive a lump sum amount after the lock-in period. Under the dividend scheme, the investor will receive a dividend regularly, during the 3 year lock-in period.
Tax Benefits
Tax is not levied on returns of up to Rs. 1 Lakh earned from an ELSS. Up to Rs. 1, 50,000 of the investment can be claimed for tax deduction from the gross total income, as per the provision stated under Section 80C of the Income Tax Act.
Systematic Investment Plan
The investor can use SIP or Systematic Investment Plan to invest in ELSS. This also helps to better plan and execute your tax savings.
What are Open-end Funds?
Open-end Mutual Funds are the type which have no restrictions in terms of the amount of shares which the fund can issue. These funds are like a ccollective investmentscheme where the investor can buy shares directly from the fund instead of the existing shareholders.
Open-end funds form a majority in the Mutual Fund market and are popular in many countries. The issue price of an open-ended fund is a direct indication of the share’s performance as these funds are issued and redeemed on the basis of their net asset value (NAV).
Open-ended funds are an easy yet valuable tool for investors looking to invest. A majority of open-ended funds are managed actively where the portfolio manager chooses the securities to be purchased. Once the fund has accumulated total assets which may not be easily manageable or may hamper the objective of the fund, the fund manager can decide to close the fund to new investors. In some cases, the fund may be closed to further investment even by existing fund investors.
Here are top 10 ELSS picks for taxpayers to consider in 2018 based on their 5-year returns. The funds are listed in no particular order.
Additional Reading: Mutual Funds Taxation Post Budget: All You Need To Know
- Axis Long Term Equity Fund – Regular Plan (G)
| Type | Open-ended | ||
| Return since Launch | 18.25% | ||
| 5-Year Return | 22.33% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 4 | ||
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- BOI AXA Tax Advantage Fund – Regular Plan
| Type | Open-ended | ||
| Return since Launch | 20.59% | ||
| 5-Year Return | 19.70% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 1,000 | ||
| Exit Load | 0% | ||
| CRISIL Rank | Not ranked by CRISIL | ||
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- Aditya Birla Sun Life Tax Relief 96
| Type | Open-ended | ||
| Return since Launch | 25.39% | ||
| 5-Year Return | 21.96% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 2 | ||
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- DSP BlackRock Tax Saver Fund
| Type | Open-ended | ||
| Return since Launch | 14.26% | ||
| 5-Year Return | 19.82% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 3 | ||
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- Reliance Tax Saver (ELSS) Fund
| Type | Open-ended | ||
| Return since Launch | 15.20% | ||
| 5-Year Return | 21.52% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 3 | ||
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- Escorts Tax Plan
| Type | Open-ended | ||
| Return since Launch | 12.88% | ||
| 5-Year Return | 21.25% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 1,000 | ||
| Exit Load | 0% | ||
| CRISIL Rank | Not ranked by CRISIL | ||
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- Tata India Tax Savings Fund
| Type | Open-ended | ||
| Return since Launch | 19.73% | ||
| 5-Year Return | 20.23% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 2 | ||
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- Aditya Birla Sun Life Tax Plan
| Type | Open-ended | ||
| Return since Launch | 20.36% | ||
| 5-Year Return | 21.16% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 2 | ||
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- Principal Tax Savings Fund
| Type | Open-ended | ||
| Return since Launch | 17.02% | ||
| 5-Year Return | 20.83% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 5 | ||
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- IDFC Tax Advantage (ELSS) Fund – Regular Plan
| Type | Open-ended | ||
| Return since Launch | 20.52% | ||
| 5-Year Return | 21.10% | ||
| Minimum Investment | Rs. 500 | ||
| Minimum SIP Investment | Rs. 500 | ||
| Exit Load | 0% | ||
| CRISIL Rank | 1 | ||
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Additional Reading: Best Tax-Saving Mutual Funds in 2018
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Data taken from Value Research on 20th March, 2018.