Written by CA Pankaj Chhabra – 
& Megha Jain –
Do you know you can legally claim tax deduction up to Rs. 1.5 Lacs p.a. by investing into Tax Savings Mutual Funds or ELSS Funds.?
Yes, the statements is 100% true. ELSS mutual funds has the ability to generate higher inflation-adjusted returns if you stay invested for Long-term. ELSS funds invest in equities with lock in period of 3 years. This long horizon helps in set off the short-term volatility associated with equities.
Learn more about ELSS and let your money work for long term wealth creation.
MEANING OF ELSS FUND
It is a type of mutual fund that invests a major portion of its corpus in equity and equity-related instruments. These are long term growth plans with tax saving benefits to the investors under section 80C of the Income Tax Act, 1961.
As the name suggests ELSS funds are equity oriented, with at least 80% of the investment in equity shares and only about 10-20% corpus invested in fixed income securities.
These funds have a minimum lock-in period of 3 years. However, there is no maximum tenure of investment.
TAX BENEFITS OFFERED BY ELSS FUNDS?
As mentioned above, the section 80C of the Income Tax Act offers tax deduction benefits on the principal invested in an ELSS fund. You can avail a tax deduction up to Rs. 1.5 Lacs p.a for all investments made under ELSS funds.
As there is a mandatory 3-year lock-in period that means units of ELSS funds are to be held for more than one year. Therefore, the income under this scheme is considered under Long Term Capital Gain (LTCG), which is tax free up to 1 Lakh and is taxed at 10% if LTCG exceeds Rs. 1 Lakh threshold limit.
BENEFITS OF INVESTING IN ELSS FUNDS
Along with its enormous tax benefits, ELSS funds offer other wide range of benefits as well:
- Shortest Lock-in Period – ELSS funds is the only investment instrument for tax saving, which is available with the short lock-in period against other instruments like LIC, FDs, PPF etc.
- It provides Equity Diversification as the funds are allocated over a diverse group of companies ranging from small-cap to large-cap and are invested across various different sectors.
- It has a Very Low Minimum Amount. You can start investing with as low as Rs.500. Therefore, you do not need to wait to accumulate huge investing corpus.
- You can Invest Monthly with a SIP (Systematic Investment Plan) or a lump sum amount. SIP method allows to invest in small amounts and avail tax benefits along with an opportunity to create wealth.
- It offers a Higher Return Potential. An average rate of return can be a lot higher when invested for longer periods when compared to FDs and PPFs.
- Very Easy Transaction Process. With net banking, you can subscribe to any of the scheme online, without the hassle of submitting any documents or visiting the mutual fund branch.
FACTORS TO BE CONSIDERED WHILE INVESTING IN ELSS FUNDS
