ELSS Funds are Duel Benefit Mutual Fund, that offers Tax saving under act 80C and also invest in equity fund for a highest return. It has a lock in period of 3 years. After 3 years investors can withdraw a lumpsum or start a SWP for a lumpsum regular return on monthly basis. However, investors has the option to redeem full amount if he want. But investors redeem only that portion of funds which have already completed the locking period.
What Is ELSS Funds ?
Equity linked Savings Scheme or ELSS Funds are type of Mutual Funds. ELSS is only kind of Mutual Fund that is eligible for tax Deduction under the Income Tax savings Act 1961, Section 80C. This funds are mainly invested in equity shares and has locking period of 3years. Investing in ELSS funds are popular for Tax Savings mainly. But 65% of portfolio of ELSS funds are invested in equity shares that also eligible for higher returns. So investing in ELSS Mutual Funds are only double profitable Fund that offers reduction of Rs 1,50,000 and tax savings of Rs 46,800 per year as well as higher returns after locking period.
Is ELSS Funds Offers A Tax Free Returns ?
ELSS investment is eligible for Tax rebate up to 1.5 lacs per year from your taxable income and save tax Rs 46,800 per year. It has lock in period of 3 years, so short term capital gain tax not claimed. But long term capital gain tax will be applicable. Up to Rs 1,00,000 capital gain per year is tax free. Above this limit any gain will be taxable under Long Term Capital Gains Tax of 10% with Cess and Surcharge. Any Dividend received from ELSS Fund, will be added to your gross income and taxable according to your slab. Although it has no Tax free return, ELSS funds are the best Tax free investment under Sec 80C.
ELSS Funds Better Than PPF Investment for Tax Savings, Why ?
Equity Linked Savings scheme or ELSS and Public Provident Fund or PPF both are popular options for tax savings investment. Both are eligible for Tax savings under Sec 80C of Income Tax Act 1961. But ELSS has only 3 years lock in and PPF has a lock in period of 15 years. PPF offers a fixed interest rate when ELSS is a equity related Mutual Fund that has market risk involved with higher returns. Those who prefer liquidity then ELSS is much better. On the other hand in PPF interest rate depends on Government policy fluctuations, restrictions and revision on regular basis. Now interest rate in PPF is around 7-8%. After 5 years of investment in both funds, ELSS Is Duel Benefit Mutual Fund and return will be higher due to 65% of it’s fund invested in shares and equity related funds.
SIP or Systematic Investment Plan also applicable in ELSS schemes. Through SIP investment in ELSS Fund you can withdraw some amount after 3 years and reinvest another growth fund for higher return. On the other hand PPF is not allowed to withdraw before 15 years. Shorter lock in period, liquidity and higher return potential made the ELSS is Duel Benefit Mutual Fund, and more popular than PPF for tax savings investment under sec 80C.
ELSS Funds also Can Be Invested Through SIP
SIP invest is a smart choice in case of Mutual Fund investment and SIP also can be done in ELSS investment. SIP makes your investment risk free with reduce the cost of average of your investment over time. Investor put a small amount of investment at a regular intervals systematically. SIP interval can be Weekly, Quarterly, Monthly, or Bi annually as per your convenient. The amount invested in every SIP will be counted for Tax rebate under Sec 80C of Income Tax Act 1961, up to 1.5 lacs.
Is ULIP Better Than ELSS Funds ?
ULIP and ELSS both are similar product as both are eligible for sec 80C of income Tax Act 1961. Both are invested in equity related growth fund for higher return. But difference is that ULIP is an insurance product where Life coverage included. A certain part of premium apply for mortality charges and other insurance policy charges. Rest of premium goes for investment. In ULIP lock in period 5 years and completion of policy term return also tax free. In case of ELSS Long Term Capital Gain Tax applicable above gain of one lac.
So, anybody who need insurance with Tax savings ULIP is the better option for them.
Over all ELSS is duel benefit Mutual Fund and for that reason ELSS is the most popular Tax savings option in the market between all other option in Tax savings.
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