Tax Saving Mutual Fund or ELSS

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Tax Saving mutual funds: Equity Linked Savings Scheme
Tax Saving Mutual Fund

Meaning:Tax-planning funds cater to the investors' need of minimizing tax burden on the returns from investments. They are also called equity-linked tax saving funds or ELSS. These funds are market capitalization agnostic. These are close ended schemes with a lock-in period of 3 years.

Description: These are like typical mutual funds, which help to diversify investments across different varied market capitalization stocks and in addition also help you reduce your tax burden by creating a portfolio which takes the maximum advantage of the tax exemption under Section 80C of the Income Tax Act, having an upper limit of Rs 1,00,000.

Planning your taxes is an integral part of your financial planning. Sec 80C of the Income Tax Act allows you to claim deductions from your taxable income by investing in certain investments. One of the most popular Sec 80C investments is in tax saving mutual funds or Equity Linked Savings Scheme (ELSS). 

This is an equity diversified fund and investors enjoy both the benefits of capital appreciation, as well as tax benefits. 

Features of TAX saving Mutual Fund:

 Lock in period: This type of mutual fund has a lock in period of 3 years from the date of investment. This means if you start a Systematic Investment Plan in an ELSS, then each of your investments will be locked in for 3 years from the respective investment date. 
Investors can exit ELSS by selling it after 3 years.

  Both dividend and growth option:Similar to other equity funds, ELSS funds have both dividend and growth options. Investors get a lump sum on the expiry of 3 years in growth schemes. 

For tax purposes, returns from an ELSS scheme are tax free. You can claim upto Rs. 1 lakh of your ELSS investment as a deduction from your gross total income in a financial year under Sec 80C of the Income Tax Act.

Advantages of ELSS over other tax saving instruments : While ELSS investment is locked in for 3 years, PPF investments are locked in for 15 years, NSC investments are locked in for 6 years, and bank fixed deposits eligible for tax deduction are locked in for 5 years.

Analysis Long Term Performance : Remember to do thorough research when you invest in an ELSS fund. You must look at the long term performance of the fund before putting your money in it. 


Some Example of best Tax saving mutual fund :


For More details of some other Schemes Click This Link:

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