Tax Saver ELSS Mutual Funds: A Complete Guide to Investing and Saving Taxes

Tax Saver ELSS Mutual Funds: A Guide

If you are an investor looking to save taxes, ELSS (Equity Linked Saving Scheme) mutual funds can be a great option. ELSS mutual funds invest in equity markets and have a lock-in period of 3 years, making them a popular choice among investors who want to save taxes while also investing in equities. In this blog, we will explore ELSS mutual funds in detail, including their benefits, features, and how they can help you save taxes.

What are ELSS Mutual Funds?

ELSS mutual funds are equity-oriented mutual funds that offer tax benefits under Section 80C of the Income Tax Act. These funds invest primarily in stocks, and investors can claim tax deductions up to Rs. 1.5 lakh by investing in them. ELSS funds have a lock-in period of 3 years, which means that investors cannot redeem their investments before the completion of this period.

Benefits of Investing in ELSS Mutual Funds

1. Tax Benefits: One of the main advantages of investing in ELSS mutual funds is that they offer tax benefits. Investors can claim deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
2. High Returns: ELSS mutual funds invest primarily in equities, which can offer higher returns than other investment options in the long run. Over the past 5 years, the average returns from ELSS funds have been around 12-15%.
3. Diversification: ELSS funds invest in a diverse range of stocks, which helps in reducing the risk of concentration and provides investors with a diversified portfolio.
4. Short Lock-in Period: ELSS funds have a lock-in period of only 3 years, which is shorter than other tax-saving investment options such as PPF, NSC, and tax-saving FDs.

How to Invest in ELSS Mutual Funds?

Investing in ELSS mutual funds is a simple and straightforward process. Here are the steps to follow:

1. Choose a Fund: Research and select a suitable ELSS fund that aligns with your investment goals and risk appetite.
2. KYC Verification: Complete the KYC verification process by submitting your KYC documents such as PAN card, Aadhaar card, and address proof.
3. Invest: Invest in the selected ELSS fund either through a mutual fund distributor or an online platform.
4. Monitor: Keep track of the performance of the fund and review your investments periodically to ensure that they are aligned with your investment goals.

Top ELSS Mutual Funds to Consider

Here are some of the top-performing ELSS mutual funds that you can consider:

1. Axis Long Term Equity Fund: This is a highly-rated fund that has consistently delivered good returns over the years. The fund has a diversified portfolio and invests in large-cap as well as mid-cap stocks.
2. Mirae Asset Tax Saver Fund: This fund has a solid track record of delivering high returns over the long term. The fund invests in quality stocks across market caps and sectors, making it a well-diversified investment option.
3. Aditya Birla Sun Life Tax Relief 96: This is a popular ELSS fund that has a long track record of delivering consistent returns. The fund invests in a mix of large-cap, mid-cap, and small-cap stocks, providing investors with a well-diversified portfolio.
4. DSP Tax Saver Fund: This fund has a good track record of delivering solid returns over the years. The fund has a diversified portfolio of stocks across market caps and sectors, which helps to reduce risk and volatility.
5. IDFC Tax Advantage Fund: This fund has delivered consistent returns over the years and has a well-diversified portfolio. The fund invests in a mix of large-cap and mid-cap stocks, providing investors with exposure to different segments of the market.

Investing in ELSS funds can be a good option for investors who want to save taxes while also earning good returns on their investments. It is important to note that ELSS funds come with a lock-in period of 3 years, which means that investors cannot redeem their investments before the completion of this period. Therefore, investors should choose their ELSS funds carefully and keep in mind their investment goals and risk appetite before investing.

Conclusion

ELSS mutual funds offer an excellent opportunity for investors to save taxes while also investing in equities. These funds come with several benefits, including tax benefits, high returns, diversification, and a short lock-in period. As with any investment, it is important to research and select a suitable fund that aligns with your investment goals and risk appetite.

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Frequently Asked Questions (FAQs)

What is the lock-in period for ELSS mutual funds?
A: The lock-in period for ELSS mutual funds is 3 years.

What is the tax benefit of investing in ELSS mutual funds?
A: Investors can claim a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act by investing in ELSS mutual funds.

Are ELSS funds risky?
A: ELSS funds invest primarily in equities, which can be volatile and risky in the short term. However, over the long term, equities tend to provide higher returns than other asset classes.

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Can I redeem my ELSS mutual fund investment before the lock-in period ends?
A: No, investors cannot redeem their ELSS mutual fund investment before the completion of the 3-year lock-in period.

How do I invest in ELSS mutual funds?
A: Investors can invest in ELSS mutual funds through a mutual fund distributor or an online platform.

Can NRIs invest in ELSS mutual funds?
A: Yes, NRIs can invest in ELSS mutual funds subject to certain conditions.

What is the minimum investment amount for ELSS mutual funds?
A: The minimum investment amount for ELSS mutual funds varies from fund to fund and can range from Rs. 500 to Rs. 1,000.

What is the exit load for ELSS mutual funds?
A: ELSS mutual funds typically have an exit load of 1% if the investment is redeemed before the completion of the 3-year lock-in period.

Are ELSS mutual funds better than other tax-saving investment options?
A: ELSS mutual funds can be a good option for investors who want to save taxes while also investing in equities. However, the choice of investment depends on an individual’s financial goals and risk appetite.

What are the risks associated with investing in ELSS mutual funds?
A: The risks associated with investing in ELSS mutual funds include market volatility, concentration risk, and fund manager risk. Investors should be aware of these risks and choose their funds carefully.