What is ELSS?
An Equity Linked Savings Scheme (ELSS), popularly known as a tax-saving mutual fund, is the only mutual fund which qualifies for a tax deduction of up to Rs. 1.5 lakh annually under Section 80C of the Income Tax Act. As the name suggests, it is a type of open-ended equity fund.
What is an ELSS Calculator?
An ELSS Calculator is a tool that helps in determining the returns of an ELSS depending upon the type of scheme and whether one makes a lump sum investment or a SIP. The ELSS SIP Calculator would require details like the amount of the investment, the tenure of the SIP and the expected rate of returns. The calculator, based on these details, will be able to generate an estimated rate of return for your investment.
ELSS Calculators are of three types:
- SIP ELSS Calculator
It is an important tool to evaluate the returns of investment for a certain period of time when done through a Systematic Investment Plan (SIP). Enter details like amount of monthly installment, tenure and expected rate of interest to get an estimate of the returns.
- Lump sum ELSS Calculator
Just like the SIP calculator, this helps to know the estimated returns when a lump sum amount is invested. Enter details like tenure, rate of interest expected at the time of maturity and instead of your monthly installment amount, enter the lump sum amount.
- SIP Past Performance Calculator
The SIP Past Performance calculator helps track the history of performance of a mutual fund scheme. It gives an insight how it performed in the past and may head in the future although it’s not guaranteed that a fund will perform similarly as it did in the past. However, it helps to know how it performed in various market cycles. You will need to fill information like – starting as well as maturity month and year of the SIP, valuation date, the name of the Asset Management Company (AMC) and the investment amount.
Benefits of Investing in ELSS
An ELSS comes with the shortest lock-in period of 3 years among all the tax saving investment options.
Being a market-linked instrument, an ELSS can give higher returns than conventional tax-saving instruments like fixed deposits, PPF, National Savings Certificate (NSC), etc.
In addition to qualifying for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, the long-term capital gains earned on an ELSS are tax-free up to Rs. 1 lakh per annum.
An ELSS is the only tax-saving instrument which comes with a SIP (Systematic Investment Option) mode of investment. A SIP enables one to invest with an amount as low as Rs. 500 along with getting the benefit of power of compounding.
Tax Benefits of ELSS
As mentioned above, ELSS is the only fund to have tax benefit. In addition to qualifying for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, the long-term capital gains earned on an ELSS are tax-free up to Rs. 1 lakh per annum.
ELSS v/s Other Tax-Saving Investment Instruments
|Tax-Saving Investment Options||Lock-in Period||Return||Risk Profile|
|Fixed Deposit||5 years||6%-7%||Low|
|Public Provident Fund||15 years||7%-8%||Low|
|National Savings Certificate||5 years||7%-8%||Low|
|National Pension System||Till retirement (60 years of age)||8%-10%*||Moderate|
*5-year weighted average return (with 50% in equity and 25% each in corporate bonds and government bonds) of NPS Tier-1 schemes. Returns not guaranteed.
How Much Should I invest in ELSS?
One can start with a minimum amount of Rs. 500 in a SIP and there is no upper limit. However, the tax exempted amount is only Rs. 1.5 lakh in the financial year. One can also start with lump sum investment in ELSS. Depending on your financial goal, keeping in mind the lock-in period, and your tax slab you can choose an amount that satisfies these characteristics.
How to Invest in ELSS?
One can create a login account in an AMC and start investing directly. One can also go for a regular plan through brokers but unlike direct plans, the returns will be lowered as extra commission apart from the expense ratio will be charged. You can also use online platforms such as Paisabazaar where direct plans of mutual funds are sold. Log in to the Paisabazaar website or mobile app where you can compare more than 1,000 of mutual funds. You can choose among the best ELSS and invest in the same.
Top 10 Best Tax Saver ELSS Mutual Funds
|Fund Name||1 Year Returns||3 Year Returns||5 Year Returns||AUM|
|Aditya Birla Sun Life Tax Relief 96||7.13%||14.83%||11.54%||₹ 8,912.66 crore|
|Axis Long Term Equity Fund||15.27%||19.21%||13.2%||₹ 19,817.3 crore|
|Tata India Tax Savings Fund||17.23%||17.5%||13.76%||₹ 1,873.4 crore|
|Invesco India Tax Plan||11.53%||15.52%||11.98%||₹ 869.81 crore|
|Kotak Tax Saver||13.99%||14.57%||11.03%||₹ 9,34.61 crore|
|DSP Tax Saver Fund||16.56%||15.25%||12.08%||₹ 5,642.77 crore|
|ICICI Prudential Long Term Equity Fund (Tax Saving)||12.27%||12.45%||9.4%||₹ 6,424.9 crore|
|Franklin India Taxshield Fund||7.44%||11.48%||8.96%||₹ 4,069.61 crore|
|IDFC Tax Advantage Fund||6.35%||13.54%||9.95%||₹ 2,062.88 crore|
|L&T Tax Advantage Fund||6.04%||12.86%||9.79%||₹ 3,420.69 crore|
|Motilal Oswal Long Term Equity Fund||16.29%||17.13%||-||₹ 1,388.56 crore|
|Mirae Asset Tax Saver||16.19%||19.82%||-||₹ 2,111.58 crore|
|Principal Tax Savings Fund||5.05%||11.9%||9.03%||₹ 415.33 crore|
|Reliance Tax Saver Fund||3.24%||7.08%||4.67%||₹ 1,0914.29 crore|
|SBI Magnum Taxgain Scheme||5.98%||9.84%||6.98%||₹ 7,171.41 crore|
Frequently Asked Questions
Q. Is demat account required to invest in ELSS?
A. No, as ELSS is a type of mutual fund a demat account is not required to invest in it.
Q. Is it safe to invest in ELSS?
A. It comes under ‘High Risk with High Returns’ category as major part of the assets are allocated to equities. However, it has a 3-year lock-in period which balances the risk and returns. It is safer than direct investment into equities. Apart from returns, you also get tax benefits from ELSS which is an additional incentive compared to other MF schemes
Q. What are the benefits of ELSS? Is it different from other mutual fund schemes?
A. Yes, it has a mandatory lock-in period of 3 years and it is the only mutual fund where investment upto Rs. 1.5 lakh is deductible from the taxable income of the investor.
Q. Are ELSS Returns Taxable?
A. ELSS returns upto Rs. 1 lakh are exempted from tax after the lock-in period of 3 years is completed. Returns exceeding Rs. 1 lakh levy Long Term Capital Gains Tax which currently stands at 10%.
Q. How do I invest in ELSS funds?
A. Visit Paisabazaar app or website where you can compare ELSS of different AMCs and choose accordingly. You need to create an account and go to Tax Saver Funds.
Q. Which one is better ELSS or SIP?
A. We are often asked this question by our consumers. First of all, ELSS is a scheme, while SIP is a way of investment. One can opt for SIP in ELSS as well.
Q. What is the lock-in period in ELSS Fund?
A. 3 Years
Q. What is the maximum tax benefit that can be availed by investing in ELSS every year?
A. Up to Rs. 1.5 Lakh for each financial year.
Also Read: Best ELSS Funds: Top 10 Tax Saving Mutual Funds.
You may also like to read – the difference between sip and Lumpsum
You would like to read – how to invest in mutual funds