Also known as tax-saving mutual funds, ELSS mutual funds or Equity-linked Saving Schemes are equity-oriented mutual funds. These offer higher return potential and are also an effective tax-saving instrument. Further, the ELSS fund has the least statutory lock-in period among other tax-saving options, such as PPF and FD. ELSS mutual funds are open-ended and need to mandatorily invest in equity and equity-related instruments.
|ELSS Funds||Features||AUM (as of 5th|
|Quant Tax Plan Fund||Expense ratio of 2.25|
Approximately 21.92% annualised 5-year returns
NAV: Rs. 221.84
|Rs. 433.15 crores|
|Mirae Asset Tax Saver Fund||Expense ratio of 1.85|
Approximately 15.83% annualised 5-year returns
NAV: Rs. 29.50
|Rs. 9,832 crores|
|DSP Tax Saver Fund||Expense ratio of 1.92|
Approximately 12.73% annualised 5-year returns
NAV: Rs. 77.45
|Rs. 9,755.66 crores|
|Canara Robeco Equity Tax Saver Fund||Expense ratio of 2.14|
Approximately 14.90% annualised 5-year returns
NAV: Rs. 107.71
|Rs. 2,771.80 crores|
|Navi Long Term Advantage Fund-Growth||Expense ratio of 0.38|
Approximately 15.29% annualised 5-year returns
Ideal if you are looking to invest Rs. 10,000 monthly for tax saving purposes.
|Rs. 68.63 crores|
|BOI AXA Tax Advantage Fund||Expense ratio of 2.45|
Approximately 15.90% annualised 5-year returns
NAV: Rs. 95.31
|Rs. 517 crores|
|Axis Long Term Equity Fund||Expense ratio of 1.54|
Approximately 12.75% annualised 5-year returns
NAV: Rs. 65.30
|Rs. 34,371 crores|
|JM Tax Gain Fund||Expense ratio of 1.69|
Approximately 19.02% annualised 5-year returns
NAV: Rs. 30.26
|Rs. 65.33 crores|
|IDFC Tax Advantage Fund||Expense ratio of 1.96|
Approximately 14.47% annualised 5-year returns
NAV: Rs. 95.34
|Rs. 3,439 crores|
|Kotak Tax Saver Fund||Expense ratio of 2.23|
Approximately 17.41% annualised 5-year returns
NAV: Rs. 68.832
|Rs. 2,296 crore|
STCG or Short Term Capital Gains are returns on investments held for 36 months or less. This does not apply in the case of ELSS tax saving mutual funds, as the mandatory lock-in period for all ELSS mutual funds is at least 3 years.
If investors sell their units in an ELSS fund after 3 years, the realised returns are referred to as long-term capital gains (LTCG). According to existing laws, such gains of up to Rs. 1 lakh is exempted from taxes. Returns exceeding Rs. 1 lakh are taxed at 10%.
The best ELSS tax saving mutual funds invest in a range of stocks with different market capitalisation across various sectors to generate higher returns. This diversification reduces portfolio risk.
Several mutual funds invest in equity and equity-related investment instruments. However, except for ELSS schemes, none offers tax-saving benefits under Section 80C of the Income-tax Act, 1961. These funds present you with the opportunity to save up to Rs. 1.5 lakh from your taxable income.
ELSS schemes come with a minimum investment value of Rs. 500. Moreover, individuals have multiple investment routes to choose from, including SIP (Systematic Investment Plan), SWP (Systematic Withdrawal Plan), and lump sum. Thus, you can choose whichever option is best suited for you.
Also read: Advantages and disadvantages of ELSS funds
ELSS mutual funds are suitable for investors who are looking to invest in equity and save tax under Section 80C of the Income Tax Act. Since these mutual fund schemes primarily invest in stocks, they carry high financial risk. That said, these funds have the potential to generate higher returns in comparison to other tax-saving schemes owing to the equity exposure.
Hence, for individuals, it is key to assess their risk profile before allocating funds to any of the best ELSS funds in India.
You must remember that ELSS mutual funds come with a compulsory lock-in period of three years. Therefore, you need to consider your investment duration before the withdrawal. If the scheme allows you to make regular withdrawals, do note that you can only withdraw the money which has exceeded three years from the day you invested.
This is why you need to be particular about your date of the contribution and investment duration before you invest in ELSS schemes.
If investing in equity is your main objective alongside availing yourself of tax benefits, ELSS tax saving mutual funds are worth considering. That said, if your financial goals are not in line with the scheme, you may consider other options available on the Navi. If you want to unlock the power of passive investing, visit Navi Mutual Fund and explore a host of mutual funds
The expense ratio refers to the yearly fee that an asset management company (AMC) imposes on investors to finance the expenses of running the fund. This annual maintenance charge has a direct impact on your net returns. Hence, it is vital to consider the expense ratio of the different ELSS mutual funds when comparing them.
ELSS comes with a lock-in period of 3 years. However, the redemption works differently for a lump sum and SIP investments. For instance, if you have made a lumpsum investment of Rs.10,000 on 1st December 2021, you can only redeem it on or after 1 December 2024.
However, the process is a bit different when it comes to SIP investments. For SIPs, you invest a fixed amount every month. Hence, the lock-in period applies to all of your monthly investments individually. Let’s understand this with an example.
Let’s say you invest Rs.1,000 from January 2022 to April 2022 and you receive 100 units every month from your investment. So, for SIPs, January units can only be redeemed after January 2025 (a lock-in period of 3 years). But this won’t be applicable for other months’ investments. You can redeem February’s units only after February 2025 and so on and so forth.
Although investing in ELSS tax saving mutual funds gives significant benefits, for example, tax exemption, there are certain risks involved nonetheless. Therefore, it is of utmost importance that you consider several aspects, such as your risk appetite, investment objective, etc., before investing.
Moreover, you should also take into account the potential market volatility as the consistency and returns of these funds depend on the performance of the stock market.
Ans: Yes, you can invest in both PPF and ELSS funds and enjoy tax benefits of up to Rs. 1.5 lakh on the investments made in both these schemes, under Section 80C of the ITA.
Ans: After the initial lock-in period of 3 years is over, individuals can avail of tax benefits on ELSS if they re-invest their funds.
Ans: Yes, it is possible to invest more than Rs. 1.5 lakh in ELSS in a given year since there is no upper cap on the investment amount. It is, in fact, encouraged to invest more than Rs. 1.5 lakh to maximise the tax benefits under this scheme.
Ans: It is important to take factors such as risk appetite, expected returns, financial goals, and more into consideration before proceeding to invest in any of these instruments. Individuals with a higher risk appetite and long-term investment goals will find ELSS to be more suitable for their portfolios.
Ans: Switches between regular and direct ELSS are not permitted during the lock-in period of 3 years. You can switch between plans only after this tenure of 3 years is over.
Ans: There is no right time for investing in ELSS funds. You can start allocating your funds to this type of equity-oriented scheme whenever you want. However, you might want to consider holding on to your units for as long as possible to maximise your long-term portfolio value.
Before you go…
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully before investing.