Are you looking for a mutual fund investment option which provides you with a reasonable return on your investment and reduces your tax outgo at the same time? Then, invest in ELSS tax-saving mutual funds and enjoy luring inflation-adjusted returns along with exemption.
In this blog, we have covered everything you need to know about ELSS mutual funds. Let’s dive in –
What Are ELSS Mutual Funds?
Equity Linked Saving Schemes or ELSS are the best tax-saving mutual funds that fall under the diversified equity mutual funds category. In ELSS mutual funds, 80% of the assets are invested in equity and equity-related instruments and the remaining part of the corpus is invested in debt funds.
Investing in ELSS tax-saving mutual funds comes with dual benefits of capital appreciation and tax deductions. Coming to tax savings, ELSS funds allow a tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act. It is also important to note here that ELSS funds come with a mandatory lock-in period of 3 years.
Features of ELSS Mutual Funds
Here are some important features of ELSS mutual funds –
- ELSS funds invest in equity in a diversified manner – across different themes, sectors and market capitalisations.
- A minimum of 80% of the total investment is invested in equity and equity-related instruments.
- ELSS funds come with a lock-in period of 3 years.
- Income is treated as Long Term Capital Gains or LTCG and taxed according to the prevalent tax rules.
What are the tax benefits offered by ELSS Mutual Funds?
According to Section 8oC of the Income Tax Act, you can avail of tax deduction benefits of up to Rs. 1.5 Lakhs on the principal amount invested by you in the ELSS scheme. Further, these schemes have a lock-in period of 3 years, which means when you redeem the investment you receive long-term capital gains or LTCG. These gains are not taxable up to Rs. 1 Lakh in one financial year.
Comparison of ELSS with other tax-saving instruments
Why Should You Invest In ELSS funds?
ELSS Tax Saving Funds offer a wide range of benefits including-
- Diversification
Most ELSS funds invest across various sectors and in a diversified group of companies ranging from small-cap to large-cap. This allows you to diversify your investment portfolio.
- Investor-Friendly
You can start investing in ELSS funds by starting with as low as Rs. 500. This ensures that you can even invest if you don’t have an appreciable corpus.
- Inflation Beating Returns
On average, these funds gave inflation-beating returns of 11.3% in the last 10 years, 12.49% in the last 5 years and 23.84% in the last two years as on 07th November 2022. (Source: moneycontrol.com)
Takeaway
ELSS funds bring you dual benefits of tax-saving and capital appreciation but come with a mandatory lock-in period of 3 years. Need assistance in investing your business cash in ELSS funds? Schedule a call with our expert.
