Equity linked savings schemes fund is on open ended mutual fund which invests its majority corpus in equity. The most important aspect of ELSS Scheme is the tax saving advantage along with the opportunity to earn substantial return. There are plenty of other investment options such as fixed deposit schemes, Public provident fund, National savings scheme, land, gold etc. but none of them matches ELSS when it comes to lock-in period, returns or tax saving ability. In addition to that returns fetched under ELSS are taxable in following way:
| 31st March 20XX | 31st March 20XX |
| LTCG Non-taxable | LTCG Taxable @ 1% on returns above 1 lakhs |
Let us look at other investment avenues with their return and lock in period compared to ELSS.
| Investment option | Lock-in Period | Returns (%) | Taxability |
| Public Provident Fund | 15 Years | 7-8 | No tax |
| National Savings Certificate | 5 Years | 7-8 | Yes |
| National Pension Scheme | Till retirement | 8-10 | Partially taxable |
| 5-yr Banks deposit | 5 years | 6-7 | Yes |
| ELSS Fund | 3 years | 15-18 | Partially taxable |
Features of best ELSS mutual fund
The list of advantageous does not stop here; here are the features of the best ELSS mutual funds.
- Easy entry & exit. Completing of KYC and application is all that is required for opting for ELSS Scheme. Paperless withdrawal makes liquidation of fund as easy as one click.
- Minimum investment amount starts from Rs. 500, thus no necessity of arranging huge capital for investment purposes.
- Easy tracking in the form of electronic statement makes you access the scheme anywhere anytime.
- Diversification right from the first instance, as ELSS invests in top performing scripts around the stock exchange.
- Savings habit is developed with lock-in period, and in exchange it helps your investment grow with more exposure.
While the advantages might be too tempting for any investor, it is pertinent to note that ELSS has more exposure to equities, and hence comes with inherent risk and losses. Therefore it is essential to carefully evaluate all ELSS schemes. Let us check out top three ELSS schemes.
- Axis Long Term Equity Fund – Direct (G). With an objective of capital appreciation with creation of diversified portfolio, Axis Long term fund is constant pick amongst investors. Following are the highlights of the scheme.
| Particulars | Details |
| Return | 3 Yr – 14.5%; 5yr – 24.6% |
| Minimum SIP | 500 |
| Benchmark | S&P BSE 200 TRI |
| NAV | 47.5006 |
| Expense ratio | 0.95% |
| Target sectors | IT Software, Automobiles & ancillaries, pharmaceuticals and chemical industries. |
The reason for this fund to be successful is because of individual evaluation of stock rather than market as a whole. This fund targets long term profitability rather than short term opportunities.
- IDFC Tax advantage ELSS fund – Direct (G). With banks and financial sectors are the primary target, this fund has played safe by investing in less volatile scripts. Risk averse crowd tend to invest in IDFC Tax advantage ELSS fund more on account of its stability. Following are the highlights of the scheme.
| Particulars | Details |
| Return | 3 Yr – 10.67%; 5 Yr – 12.29% |
| Minimum SIP | 1000 |
| Benchmark | S&P BSE 200 TRI |
| NAV | 56.95 |
| Expense ratio | 0.40% |
| Target sectors | Banks, IT Software, Financial Institutions. |
The returns in this fund might be a cause of concern but, risk wise this fund can be termed as stable. Therefore investors with low risk profile might still get better returns than other investment options along with stability.
- Aditya Birla Sun Life Tax Relief 96 – Direct (G). With a combination of debt, equity and money market instrument, this fund hits the right strings of return and risk taking fund. Following are the highlights of the scheme.
| Particulars | Details |
| Return | 3 Yr – 15.9%; 5 yr – 23.5% |
| Minimum SIP | 500 |
| Benchmark | S&P BSE 200 TRI |
| NAV | 31.19 |
| Expense ratio | 1.06% |
| Target sectors | Pharmaceuticals, Banks, FMCG |
High exposure to small and mid cap stocks makes this fund highly risk potent although return chart suggest, fund performs exceptionally well if invested beyond 5 year period.
Investment in ELSS is a good option as it provides shorter lock-in along with tax savings. However like each coin have two sides, ELSS being equity oriented fund faces the risk of market volatility. Thus these funds are not meant for risk averse investors albeit keeping them off the portfolio will hinder tax saving ability. Another disadvantage of ELSS is no partial withdrawal available like PPF, so any capital invested gets locked for a minimum period of three years.
Things one should know before investment in ELSS mutual funds.
- ELSS investment can start with investment as low as Rs. 500, however tax deduction is available for investment up to Rs. 1,50,000 under section 80C. Therefore investors with tax savings target should bear the same in mind.
- While choosing ELSS, it is pertinent to evaluate risk adjusted returns amongst different funds and choose the one with consistency.
- SIP option can be availed for subscribing ELSS, whereby cost averaging is possible otherwise lump sum investment is also an option.
- There are two options available under ELSS scheme one is dividend option and the other is growth option. Growth option in ELSS is always advisable.
- ELSS scheme can always be exposed to market risk, hence reviewing your investment is always necessary, once the lock-in is lifted.
