Equity-Linked Savings Scheme or ELSS is a type of mutual fund primarily investing in equity and equity-related securities. It is a tax-saving investment option that offers several tax benefits based on Section 80C of the 1961 Income Tax Act in India. ELSS mutual funds have a lock-in period of three years, which means investors cannot redeem or sell their units before the completion of this period.
ELSS mutual fund is an excellent investment option for those willing to take a moderate risk to achieve higher returns. Moreover, the tax benefits offered by ELSS mutual funds make them an attractive investment option for investors who wish to save on taxes while generating wealth over the long term. This article further explains some benefits and the top 10 ELSS funds you should invest in.
Why Should You Invest in ELSS Mutual Funds?
One should consider investing in ELSS Mutual Funds because of the following benefits:
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Tax Benefits:
One of the primary benefits of investing in ELSS mutual funds is that they offer tax benefits under Section 80C of the Income Tax Act, 1961, in India. The amount invested in ELSS mutual funds is eligible for a tax deduction of up to Rs. 1.5 lakhs per annum can help investors save a significant amount on their taxes.
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Short Lock-In Period:
ELSS mutual funds have a lock-in period of three years, which is the shortest among all tax-saving investments under Section 80C. This means that investors can redeem their investments after the lock-in period and use the proceeds per their financial needs.
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Better Returns:
With ELSS mutual funds, you can expect higher returns than other tax-saving instruments like fixed deposits, Public Provident Fund (PPF), and National Savings Certificate (NSC). Since ELSS mutual funds primarily invest in equity and equity-related securities, they have the potential to generate higher returns over the long term.
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Diversification:
ELSS mutual funds offer diversification benefits as they invest in a basket of stocks across various sectors. This helps reduce the risk associated with investing in individual stocks and exposes investors to a wide range of companies and sectors.
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Systematic Investment Plan (Sip) Option:
Investors can opt for a SIP in ELSS mutual funds, which allows them to invest a fixed amount at regular intervals, such as monthly or quarterly. This helps investors inculcate a disciplined approach to investing and makes it easier to invest regularly.
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Transparency:
ELSS mutual funds are highly regulated by the SEBI or Securities and Exchange Board of India (SEBI). This body ensures that all fund managers are transparent in their investment approach and disclose all relevant information to investors.
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Low Costs:
ELSS mutual funds have a low expense ratio, which means that the charges levied by the fund manager for managing the fund are relatively low. This helps investors to maximize their returns by minimizing their investment costs.
Top 10 ELSS Mutual Funds In India
Here are the top 10 ELSS funds based on their past performance, risk, and returns.
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Axis Long-Term Equity Fund:
This fund has consistently delivered high returns and has a 5-star rating from rating agencies. It has a large-cap bias and invests in quality companies with good fundamentals.
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Aditya Birla Sun Life Tax Relief 96:
This fund has a multi-cap approach and invests in companies with high growth potential. It has a strong track record of performance and has been a consistent performer in the ELSS category.
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Mirae Asset Tax Saver Fund:
This fund has a diversified portfolio and invests in high-quality companies with strong growth prospects. It has a 5-star rating from rating agencies and has delivered strong returns in the past.
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ICICI Prudential Long-Term Equity Fund:
This fund has a large-cap bias and invests in high-quality companies with a proven track record. It has a 4-star rating from rating agencies and has consistently delivered strong returns over the long term.
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DSP Tax Saver Fund:
This fund has a multi-cap approach and invests in high-quality companies with strong fundamentals. It has a 4-star rating from rating agencies and has delivered strong returns over the long term.
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Franklin India Tax shield Fund:
This fund has a diversified portfolio and invests in companies with strong fundamentals and growth potential. It has a 4-star rating from rating agencies and has delivered consistent returns over the long term.
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SBI Magnum Tax gain Scheme:
This fund has a large-cap bias and invests in high-quality companies with a proven track record. It has a 4-star rating from rating agencies and has consistently delivered strong returns over the long term.
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IDFC Tax Advantage (ELSS) Fund:
This fund’s diversified portfolio invests in high-quality companies with strong fundamentals. It has a 4-star rating from rating agencies and has delivered consistent returns over the long term.
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Canara Robeco Equity Tax Saver Fund:
This fund has a multi-cap approach and invests in companies with strong fundamentals and growth potential. It has a 4-star rating from rating agencies and has delivered consistent returns over the long term.
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Kotak Tax Saver Fund:
This fund’s diversified portfolio invests in high-quality companies with strong fundamentals. It has a 4-star rating from rating agencies and has consistently delivered strong returns over the long term.
It’s important to note that past performance does not indicate future results, and investors should always research before making any investment decisions. Additionally, while ELSS funds provide tax benefits, investors should also consider the risk and return of the investment, as well as their investment objectives and risk tolerance.
