5 helpful things help before invest in ELLS fund

5 helpful things help before invest in ELLS fund

If you want to invest in Tax Saver Mutual Fund ELSS, then you need to understand some things first. ELSS Equity Linked Savings Scheme is a tax-saving mutual fund scheme, which encourages long-term investments.

5 helpful things help before invest in ELLS fund

You can avail of tax exemption under Section 80C of the Income Tax Act on investing up to Rs 1.5 lakh in these schemes in a financial year. However, there is no limit on investment in ELSS.

For tax saving in ELSS, better returns are compared to other traditional investment instruments like FD, NSC, KVP. Compared to the last 5 years, the average return in the ELSS scheme has been 13%.

The returns have been in the range of 20 to 24 percent. That is about 4 times more profit than the FD of a big bank.

1. No lock-in period requirement

These funds have a lock-in period but the specialty is that you can continue investing in it even after that. Schemes with a lock-in period of 3 years or 5 years can be held for a long time.

Holding it over a long period increases returns. The advantage of having a lock-in period is that investors hold it for a longer period, which increases the scope for returns.

2. 80% exposure to equities

Talking about investing in ELSS, at least 80 percent of this exposure should be inequities. Technically it can be up to 100%. ELSS also has the flexibility to invest in all market caps. Which makes it a unique product among equity funds.

3. You can invest through SIP

Investing in Mutual Funds has been made convenient through Systematic Investment Plans (SIPs). 1.5 lakh can be invested throughout the year with Rs 12,500 per month. However, the lock-in period changes in the SIP installment.

4. Redemption Amount Tax-Free

The profit on investment in ELSS and the amount received from redemption are also completely tax-free. ELSS gives better post-tax returns, as LTCG up to Rs 1 lakh received in a year from ELSS Mutual Fund is exempt from income tax.

Gains above this limit are taxed at the rate of 10 percent. Talking about investing in ELSS, at least 80 percent of this exposure is inequities. Technically it can be up to 100%.

5. Option with Better Returns

ELSS effectively provides better returns that regularly exceed the inflation rate.

On the contrary, most of the tax-saving options with fixed returns like PPF, FD, NSC, etc. are successful in giving higher returns. At the same time, the interest rates on FD, NSC are decreasing continuously.

5 funds giving better returns in 5 years

  1. Mirae Asset Tax Saver Fund: 23%
  2. BOI AXA Tax Advantage: 20%
  3. Canara Reboco Equity Tax Saver: 18%
  4. DSP Tax Saver Fund: 17%
  5. IDFC Tax Advantage (ELSS) Fund: 17%
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