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Equity Linked Saving Schemes

It is the time of year when most of people invest in various products to claim the deduction under Income Tax Act. Surprising that most of them choose either bank FD’s or PPF as their first priority for Tax saving although from so many years Equity Linked Savings Scheme (ELSS) has emerged as best product for tax saving investments in Indian market.

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund which gives following advantage-

  • Opportunity to grow your money.
  • Qualifies for tax exemptions under section u/s. 80C of the Indian Income Tax Act.
  • Long-term capital gains from these funds are tax free in your hands.
  • Shorter lock-in period of 3 years as compared to NSC & PPF
  • Exposure to equity results in high earning potential
  • Dividend payout option enables gains even during lock-in period
  • Investing through Systematic Investment Plan (SIP) averages out your investments over a period of time

Even when markets were negative, ELSS has given fair returns with double tax exemption, not only you can claim the exemption u/s 80 C but also the gains will be exempt from tax. Lack of awareness and half knowledge is the most prominent reason for the same. Following is the list of Top performing ELSS.

Tax Saving Scheme
FundReturn %RankBenchmarkReturn %Rank
Reliance Tax Saver Fund∗∗∗∗∗95.47139.202
Axis Long Term Equity Fund∗∗∗∗∗71.03241.301
Birla Sun Life Tax Relief 96∗∗∗62.61331.823
Kotak Tax Saver∗∗62.43421.6529
Franklin India Taxshield Fund∗∗∗∗∗62.12529.366
HDFC Taxsaver Fund∗∗∗61.07627.3113
Birla Sun Life Tax Plan∗∗∗∗60.77730.744
BNP Paribas Long Term Equity Fund∗∗∗∗∗58.06828.407
Religare Invesco Tax Plan∗∗∗∗57.49930.285
DSP BlackRock Tax Saver Fund∗∗∗∗57.191028.189
HSBC Tax Saver Equity Fund∗∗∗55.391125.8020

Now you can see the difference in return of FD and PPF and ELSS. According to most of the experts in the street ELSS is still the best option to make 80C investments as steep fall in the prices of crude will work as a boon for India. Indian markets will continue to perform robustly.

Benchmark

An unmanaged group of securities whose performance is used as a standard to measure investment performance. Commonly known as a market index. Some well-known benchmarks are the BSE Sensex and NSE Nifty.

Points to remember while choosing an appropriate ELSS
You must always remember to do thorough research when you invest in an ELSS fund. You must look at the long term performance of the fund before putting your money in it. Also remember to look at the fund details like the fund manager’s investment approach, portfolio of the fund, the expense ratio of the fund and how volatile the fund has been in the past.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.