Are ELSS more beneficial than other equity mutual funds, considering the tax benefit?

One is forever looking forward to good investment options where you can save tax under section 80C of the Income Tax Act,1961. This is where equity linked saving scheme comes in. This makes ELSS a far more powerful option for tax benefits compared to other equity mutual funds. Let us understand further.


Amongst the many options available on this front, such as public provident fund, national saving certificate, taxing saving fixed deposits etc, it is the ELSS that scores the highest.

Although ELSS too involves market risks, it also turns around to deliver bigger returns for bigger risks. The aim of ELSS mutual funds is to deliver tax benefit under section 80C and the growth of capital on the long run utilising a portfolio targeted at an allocation in excess of 65% equity. Putting the remaining money into market securities. 

  • Equity Get Returns
    An equity has the advantage of bringing about long-term returns, returns that are better than the various other tax-saving instruments on the market. Considering that the fund has a three-year lock-in period your fund manager has to worry about redemption pressures and therefore, fund managers can more effectively and efficiently construct a portfolio with a long-term perspective.


  • Tax-less Benefits
    Considering the assets distribution, an ELSS mutual funds are grouped under equity and a return received from equity funds after the end of 1 year is absolutely tax-free. We all know that ELSS funds come with a lock-in period of 3 years. So, returns, dividends, and the capital gains from such funds also become tax-free.


  • Tax-saving
    Investments in ELSS mutual funds are eligible for tax exemption under section 80C. This results in a tax saving of up to INR 45000 that is achievable on an investment of up to INR 1.5 lakh while the investor is in the income tax slab of 30 percent. Yet, the tax saving will vary as per the tax applicable slab on the individual.


  • Over running other funds
    In the financial markets, various tax-saving avenues such as Public Provident Fund, National Saving Certificate, Fixed Deposits exist. These are by default debt funds. This means, that if you want to save money and earn a higher return of approximately 15 percent or more, then you must invest some amount in ELSS funds. Yet, unlike most other debt systems, funds from equity linked saving schemes are market linked where returns are not ascertained by the AMC.


  • Financial Goals
    These funds are also the best for your long-term financial goals. The inflation-beating returns help you achieve your goals like a house purchase, wedding planning, child education goal, etc. However, it is not as simple as you need to regularly review the funds and its performance under the proper guidance of a financial adviser.


  • Plan Options
    Investors can also opt for the dividend option instead of the growth plan option, whereby schemes will consistently declare dividends over the years to enable investors to regularly book profits and receive tax-free income.


  • Investment option availability
    You can either make lump sum investments or else you can opt for a SIP mode. Suppose you want to save tax of INR. 60000 in a year, then in such a case, either invest INR 60000 in one go or else do a SIP of INR 5000 for a year to avail tax benefit during a particular financial year. Yet, it is always a good idea to invest in a large amount when planning for saving of tax in the ELSS repository.


  • New Enterprise

Whereas a majority of equity funds have a base investment of INR 50,000, the mutual funds have a lower limit of INR 500. Fresh entrepreneurs looking forward to test ride their situation before fully jumping in have a useful option in ELSS.


  • ELSS offers better flexibility to those investing.
  • Not like an insurance plan or a unit-linked insurance plan where you have to commit multi-year investments. 
  • A one-time investment of INR 500 can be held forever. 


Also remember, that when compared to other investment options such as Pension Provident Fund, National Saving Certificate, Fixed Deposits, Tax Deduction, where the lock in period is five years plus, with ELSS this period is only of 3 years.



Mutual Funds , Best Mutual Funds to Invest , ELSS funds

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