ELSS Tax Saving Mutual Funds

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Equity linked saving scheme, often referred as ELSS is an open ended equity mutual fund that offers dual advantage of tax saving & opportunity to grow your money.

ELSS qualifies for tax exemption under section 80C of Income tax act, 1961 & has potential upside of generating returns by investing in equity market. ELSS comes with lock in period of 3 years which is shorted lock in period amongst all the available products under section 80 C. Investment of up to 1.5 lacs in ELSS funds earn a tax exemption.

It is one of the best tax saving avenues under section 80 C due to following benefits:

  1. Possible returns: Since elss funds invest in equities, it allows the opportunity to take advantage of the upside of the market.
  2. Shortest locking period: ELSS funds investments have lock in period of only 3 years, post which investor can redeem their money. All other instruments with tax saving have longer lock in period providing less liquidity to the investments.

Features of ELSS & other tax saving instruments u/s 80C of income tax of India

Investment Lockin PeriodMarket Linked Returns Is Return TaxableSIP Facility Available
ELSS Funds3 YearsYesNo TaxYes
Life Insurance5 YearsNoNo TaxNo
PPF15 YearsNoNo TaxNo
NSC5/10 YearsNoInterest isTaxableNo
5 Yearrs Bank FD5 YearsNoInterest is TaxableNo

What ELSS offers beyond Tax Saving ?

ELSS offers lot more than just tax saving. It is a diversified equity product that can also be used as long term investment option. Long term capital gains are tax free and by keeping the money invested for long term it can allow to earn good returns.

Most mutual funds companies also offer systematic investment plans which not only allows the discipline of investing and doesn’t put burned of a big sum to be invested. Total amount to be invested can be planned for the year and then can be invested monthly.

ELSS tax saving funds comes with growth option for long term wealth creation and dividend option suitable for investor seeking dividend from the investment. The dividend received is not taxable.

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