Equity Linked Saving Scheme which is commonly known as ELSS is a kind of mutual fund where the investment is made in stocks and equity. Just like other kinds of mutual funds, the ELSS is also susceptible to the fluctuation of market prices due to varied reasons.
Investing in ELSS will also incur returns by selling and buying stocks and equity at the right time when it is profitable in the market. But the most important feature of ELSS is that it is covered under 80C of the Income Tax Act, 1961 and hence it attracts tax exemption and falls under a special category
An investment in ELSS, which starts from Rs 1.5 lac becomes eligible for deductions in tax. Investing in Equity Linked Savings Scheme not only helps in wealth accumulation but also has the added benefit of tax deductions. Then again, almost 80% of the scheme is invested in equities.
An Equity Linked Saving Scheme usually gives maximum returns amongst all other tax savings schemes. Moreover, it has one of the shortest lock-in duration which is of 3 years and it yields quite a high return in comparison to other schemes of similar nature. Then again, post-tax returns are also higher than other tax-saving schemes.
Some of the best ELSS in the country are Quant Tax Plan, Axis Long Term Equity Fund, Invesco India Tax Plan, Mirae Asset Tax Saver Fund, and Canara Robeco Equity Tax Saver Fund. Most of the 3-year returns ranged from 25 % to 34%.
ELSS are mostly diversified equity funds. Most of the investment amount goes into a variety of stocks like large caps, small caps, and mid-caps. The fund manager chooses stocks for ELSS across market capitalization and varied sectors of industry.
The Equity Linked Saving Scheme is one of the most useful schemes amongst other schemes in a mutual fund because of its tax deduction provisions under Indian law especially the of of the Income Tax Act, 1961.
For example, an investor has a certain 2 or 3 Lac for investment out of which 1.5 lac would be eligible for deductions. This eventually helps in the reduction of tax savings for the investor. Moreover, up to Rs. 1 lakh are exempt from tax in Long Term Capital Gains (LTCG) but when returns exceed Rs. 1 lakh in a particular year, one has to pay the LTCG tax of 10% on returns.
The ideal investor for Equity Linked Saving Scheme is the new investors in stocks and mutual funds as well as the salaried people. This is because the new investors usually look for investment with the least amount of risks and ELSS fits this criterion very well if compared to the other tax-saving schemes.
Moreover, salaried people are always in need of investment schemes to save taxes. The Provident Fund amount that gets accumulated can easily be invested in ELSS which will help the investor in getting good returns.
Hence, the Equity Linked Saving Scheme has become quite a popular investment asset for people because of its advantages in tax savings. It also has a lower risk factor and remains stable during inflation in comparison to the other kinds of mutual funds.