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ELSS is the best mutual fund for tax saving with tremendous benefits for the investor

Investments in the ELSS funds can qualify for tax deductions up to Rs. 1.5 lakh under the Income Tax Act, Section 80 C. For those looking to save taxes under Section 80C, they can consider investing in these schemes to claim their tax deductions.


Investors should remember few points before investing in these schemes, do not choose to invest if they do not have the potential to offer superior returns over a period of time. People should choose to invest in ELSS only if they can handle the risk of investing in the equity scheme. Equity, as it is known already, is risky and can get volatile in the short term. But they have the potential to offer superior returns over a long period of time. however, this alone should not be the criteria for ELSS investment.

ELSS funds have the shortest lock in period of three years, among the tax saving investment options under the section 80C of ITA. But they should not be taken as an investment option for only three years, investors should choose their investment horizon of at least five to seven years. Also, investors should include ELSS investments in their overall financial plan. They are good to meet the long term financial goals and the investor need not rush to redeem them as soon as they complete their mandatory lock in period. Investors can hold on to these schemes as long as they are performing well in the market.

ELSS as the best tax saving mutual funds:

The Equity Linked savings scheme or the ELSS, is the type of an equity fund and the only mutual fund that qualifies for a huge tax deduction. This is one of the best tax saving fund available under the income Tax Act, for the following reasons.

a.      Lock in period: The ELSS investment has the shortest lock in period among all the mutual fund investments and even fixed deposits, national pension scheme, PPF, etc. This offers the investor the ability to shift to a different investment option within a shorter time period. This flexibility will not be available with other tax saver schemes with longer lock in period.


b.     High returns: As this investment instrument is linked with the market, they have the potential to render higher returns than the other tax saving instruments. The returns of this tool can range somewhere between 15% and 18%.


c.      Taxation: The investment tools qualify for a tax deduction up to 1.5 lakhs under section 80C of the Income Tax Act. The ELSS offers a better tax benefit. Unlike other fixed deposits, the returns that are generated by an ELSS are only taxable partially. Its long term capital gains of up to Rs. One lakh is tax free.


d.     SIP Option: ELSS is by far the only tax saving instrument that comes with an option for a systematic investment option. Within this Sip option, it is possible for the investor to invest an amount as low as Rs. 500 in the ELSS along with enjoying the benefit of money compounding.


e.      Higher market linked returns: This system definitely offers an edge over fixed return investments that render tax benefits. As they are linked with the market, tax saver mutual funds can offer higher returns that can beat the adverse impact of inflation in the long term. This is exactly the reason why individuals have shifted from fixed deposits to ELSS instead.


f.      High levels of transparency: SEBI has made mandatory for all the AMCs to make periodic disclosures about all key information of all the schemes that are been managed by them. Till date, no tax saves investment in India features a higher degree of transparency than the ELSS making it the best mutual fund for tax saving.

Who Should invest in these ELSS funds?

ELSS is an investment instrument that is closely linked with the market. It is an excellent tax saving option for those who are seeking potentially high returns and for those who are willing to undertake a high level of risk. Over the long term period of investment, the ELSS investment is capable of not just generating wealth but at a faster pace. Those investors who do not have a strong appetite for risk and those who do not want to remain invested in the ELSS for a longer time duration may look for other safer saving investment tools such as fixed deposits. In other words, the ELSS is the most eligible investment tools for any investor who has completely their KYC details in the ELSS investment scheme.

Choosing the right partner for investment schemes:

It is important to look for the right investment partner to direct one’s mutual fund's investment. A service that is transparent, has the real intention to help and should not incur any hidden charges or commissions. Some of the high end mutual fund advising agencies do not take any charges for opening the account and for account maintenance as well.

The credibility of a good investment scheme advisor:

·       The agency should believe that good investment advice should be accessible by all the people irrespective of the volume of their investment and at a very low cost.

·       Should have a team of highly qualified financial planners and SEBI registered investment advisors who offer one on one comprehensive financial planning services and also implementation services to their clients.

·       The agency should be able to offer zero commission direct plants for free for their clients, with no transactions charges, account fee, and other hidden charges.

·       They should be able to generate the best returns for the investments in the market. They should constantly update their services at a reasonable time frame.

·       It should be a one stop destination for all investment related activities, such as investing in funds, the redemption of funds, starting or stopping of SIPs, etc., online at any time.

Final words:

The introduction of the long term capital gains in equity including ELSS has made a number of novice investors make a confident step towards long term investments.

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