There are various tax saving option which is suggested by our colleagues, chartered Accountants and Tax Experts, one of option which is investment in ELSS mutual fund. Equity Linked Savings Schemes (ELSS) offers an option to obtain tax benefits and an opportunity to harness the potential growth of investing in the equity market.
ELSS is a diversified equity fund which has lock in period of 3 years. ELSS is equity linked Saving scheme in which one can invest by opting option of systematic investment plan (SIP) i.e. by Investment fixed Amount every Month . This is option is viable person of high risk appetite.
ELSS invests a majority of its corpus in equity and equity related products. It comes with a lock in period of three years and is suitable for investors having a high risk profile. ELSS schemes are open ended, that is, investors can subscribe to the fund anytime.
What are Equity Linked Saving Scheme (ELSS) Mutual funds?
ELSS mutual funds in simple term are mutual fund schemes that invests 65% in equity related instruments that are notified to avail tax benefits. Investment in such ELSS MFs would provide tax benefit to investors u/s 80C, which is capped to a maximum of Rs 1 Lakh.
How do you benefit from ELSS Mutual funds?
There are various ways you would benefit from ELSS mutual funds.
Tax saving benefits
1) ELSS mutual funds help you to grow money: Since ELSS mutual funds invests in equity related instruments, these schemes would help you to grow your money when the stock market grows over a period of time.
2) Save tax u/s 80C up to Rs 1 Lakh: By investment in ELSS mutual funds, you are eligible for tax exemption up to Rs 1 Lakh u/s 80C. If you have not utilized 80C fully, this is a good opportunity to invest in ELSS funds.
3) Lock-in period of 3 years: ELSS mutual funds come with lock-in period of 3 years. Long term Capital gain arises on ELSS is exempt under section 10(38) because ELSS has lock in period of 3 years. Generally, investors would get tempted to take out the money from any investment option as soon as they get some good returns. They would not wait for long term to enjoy long term benefits. Since ELSS MF’s come with a 3 year lock-in period, you are forced to keep your investment for a minimum of 3 years. This would help you to grow your money that considers market fluctuations.
4) ELSS returns are tax free: If you observe, none of the returns from tax saving investment options other than PPF are tax free. NSC, Tax Saving Bank FD, Tax saving Post office TD scheme etc. all these tax saving option returns are taxable based on individual tax slab. However, interest in Public Provident Fund is tax free, but that comes with a 15 year lock-in period (apart from certain exemptions to withdraw in between). The only tax saving investment option that provides tax free returns for short period is ELSS Mutual funds. Since ELSS mutual funds invest in equity related instruments, these are classified under equity funds. Any returns received from equity funds after 1 year is tax free, hence ELSS funds which comes with a 3 year lock-in period, dividends/returns/capital gains from such funds are also tax free.
In nutshell all the Earnings from ELSS fund are not taxable, but at the same time one must take into consideration of market Risk attached with these funds.
ELSS is a diversified equity fund which has lock in period of 3 years. ELSS is equity linked Saving scheme in which one can invest by opting option of systematic investment plan (SIP) i.e. by Investment fixed Amount every Month . This is option is viable person of high risk appetite.
ELSS invests a majority of its corpus in equity and equity related products. It comes with a lock in period of three years and is suitable for investors having a high risk profile. ELSS schemes are open ended, that is, investors can subscribe to the fund anytime.
What are Equity Linked Saving Scheme (ELSS) Mutual funds?
ELSS mutual funds in simple term are mutual fund schemes that invests 65% in equity related instruments that are notified to avail tax benefits. Investment in such ELSS MFs would provide tax benefit to investors u/s 80C, which is capped to a maximum of Rs 1 Lakh.
How do you benefit from ELSS Mutual funds?
There are various ways you would benefit from ELSS mutual funds.
Tax saving benefits
1) ELSS mutual funds help you to grow money: Since ELSS mutual funds invests in equity related instruments, these schemes would help you to grow your money when the stock market grows over a period of time.
2) Save tax u/s 80C up to Rs 1 Lakh: By investment in ELSS mutual funds, you are eligible for tax exemption up to Rs 1 Lakh u/s 80C. If you have not utilized 80C fully, this is a good opportunity to invest in ELSS funds.
3) Lock-in period of 3 years: ELSS mutual funds come with lock-in period of 3 years. Long term Capital gain arises on ELSS is exempt under section 10(38) because ELSS has lock in period of 3 years. Generally, investors would get tempted to take out the money from any investment option as soon as they get some good returns. They would not wait for long term to enjoy long term benefits. Since ELSS MF’s come with a 3 year lock-in period, you are forced to keep your investment for a minimum of 3 years. This would help you to grow your money that considers market fluctuations.
4) ELSS returns are tax free: If you observe, none of the returns from tax saving investment options other than PPF are tax free. NSC, Tax Saving Bank FD, Tax saving Post office TD scheme etc. all these tax saving option returns are taxable based on individual tax slab. However, interest in Public Provident Fund is tax free, but that comes with a 15 year lock-in period (apart from certain exemptions to withdraw in between). The only tax saving investment option that provides tax free returns for short period is ELSS Mutual funds. Since ELSS mutual funds invest in equity related instruments, these are classified under equity funds. Any returns received from equity funds after 1 year is tax free, hence ELSS funds which comes with a 3 year lock-in period, dividends/returns/capital gains from such funds are also tax free.
In nutshell all the Earnings from ELSS fund are not taxable, but at the same time one must take into consideration of market Risk attached with these funds.
On analyzing the above we can conclude that from the point of view tax benefits ELSS is better option for person who is ready to bear the risk I e Risk takers . While at the same time combination of ElSS & any one other tax saving option is also not bad option for person who is conservative on risk. Example by opting 60 percent in PPF, NSC & FD while 40 percent in ELSS one can at least one can secure principal Amount of RS 1 lakh.
Conclusion:
Returns of ELSS are depend upon the movement of market , so over long term prospect investing in ELSS is definitely good tool to avail tax benefits along the high returns and growth. if the investor is willing to be risk appetite
