Equity Linked Savings Schemes (ELSSs) are a category of diversified equity mutual funds that qualify for tax exemption under Section 80C of the Income Tax Act.
Over the past three-years, top ELSSs have generated a return between 12%-20% compounded, which is better than any other tax-saving investment product.
Here are the 5 key benefits of saving tax via ELSSs:
1. Long Term Wealth Creation
Equity is the key to long-term wealth creation for investors. Under Section 80C, only three products provide access to the equity markets—Tax-saving Mutual Funds, ULIPs & NPS. Long-term average returns from equity funds is in the range of 11%-14% (post-tax). The key is to invest long-term for 3-5 years or more.
2. Shortest Lock-in period
Tax-saving mutual funds or ELSSs have the shortest lock-in period when compared to other investment options under Section 80C.
| Investment Product Under Section 80C | Lock-in Period |
| National Pension Scheme (NPS) | Till retirement |
| Sukanya Samriddhi Scheme | 21 years |
| Public Provident Fund | 15 years |
| National Savings Certificate / Tax-saving Bank Fixed Deposits / Post Office Time Deposit / ULIPs / Senior Citizens Savings Schemes /HUDCO and NHB | 5 years |
| Mutual Fund Retirement /Pension Plans | 5 years |
| Equity Linked Savings Schemes (ELSS) | 3 years |
3. High Exposure to Equity
ELSSs invest over 80% of their assets in equity. In other equity-linked tax-saving schemes like NPS, the equity allocation is capped at 75%. Other schemes, such as MF Retirement Plans, ULIPs, do not have an upper limit on equity investment, but have a 5-year lock-in period. Thus, you can gain the maximum wealth generating potential of equities.
4. Tax-efficient Returns
ELSSs not only provide the wealth creation potential of equity, the returns are tax efficient too! Long Term Capital Gains are taxed at 10% without indexation. In comparison, interest income earned on tax-saving fixed deposits is taxable at a rate based on your I-T slab. Thus, ELSSs provide better post-tax returns for those in the higher tax slabs.
5. Ease of investments
Investing in ELSSs is hassle free. You can invest in top ELSSs through your stockbroker through either the offline or online route. No further KYC or documentation required. You can invest via a Systematic Investment Plan (SIP) with a minimum investment of just Rs 500/month.
Top Tax-saving Mutual Funds (ELSSs)
| Scheme Name | Fund Manager | Managing Since | AUM (Rs Cr) | 1 Year (%) | 2 Years (%) | 3 Years (%) | Expense Ratio |
| Axis Long Term Equity Fund(G) | Jinesh Gopani | Jan-13 | 17,852 | 2.67 | 18.76 | 11.89 | 2.08 |
| ICICI Pru LT Equity Fund (Tax Saving)(G) | George Heber Joseph | Oct-15 | 5,486 | 0.50 | 12.52 | 9.58 | 2.27 |
| Aditya Birla SL Tax Relief ’96(D) | Ajay Garg | Apr-07 | 7,220 | -5.29 | 16.38 | 11.88 | 1.91 |
*Data as on December 31, 2018
To invest in ELSSs, mail us at MFSS@plindia.com. In case of any queries, feel free to get in touch with Deepak Chellani (Product Head) – 022 – 6632 2285 or Jason Monteiro (AVP-MF Research) – 022 – 6632 2469