As the end of the financial year approaches, taxpayers scramble to explore various investment options for saving on taxes. The Equity Linked Saving Scheme (ELSS) Funds have emerged as one of the most sought-after investment options, especially for those looking for tax savings coupled with capital appreciation. In this article, we explore the best ELSS funds and SIP (Systematic Investment Plan) options, along with the benefits that come with investing in ELSS funds.
What are ELSS Funds?
Equity Linked Saving Scheme (ELSS) is a type of mutual fund scheme that invests mainly in equity and equity-related instruments. ELSS is marketed as a tax-saving investment option under Section 80C of the Income Tax Act, 1961, that allows investors to claim deductions up to ₹1.5 lakh per annum. ELSS has a lock-in period of 3 years, which means that investors cannot redeem or sell their units before the completion of this period.
Key Benefits of Investing in ELSS Funds:
1. Tax Benefits:
One of the primary benefits of investing in ELSS funds is the tax-saving potential it has. Investors can avail of tax deductions up to ₹1.5 lakh per annum under Section 80C of the Income Tax Act. Furthermore, ELSS funds offer long-term capital gains tax exemption if your returns are up to ₹1 lakh in a financial year.
2. High Returns:
As ELSS funds invest primarily in equity and equity-related instruments, they have the potential to offer high returns in the long run. The average returns of the best ELSS funds over the last ten years have been around 13%, far exceeding the returns of other traditional tax-saving options.
3. Investment Diversification:
By investing in ELSS funds, investors can diversify their investment portfolios. ELSS funds invest in a basket of stocks across sectors and market capitalizations, which helps reduce the risk of investing in a single security or sector.
4. Lock-in Period:
ELSS funds have a lock-in period of 3 years. This provides fund managers with enough time to create long-term value from the stocks they pick, and investors an opportunity to make the most of the power of compounding.
The Best ELSS Funds to Invest in:
If you are planning to invest in ELSS funds, it is important to analyze and pick the ones that best suit your investment needs and goals. Here are some of the best ELSS funds in India:
1. Mirae Asset Tax Saver Fund:
The Mirae Asset Tax Saver Fund is one of the best ELSS funds to invest in currently. The fund has delivered an average annual return of 19.9% in the last five years. The fund invests in large-cap stocks and has a diversified portfolio. The Mirae Asset Tax Saver Fund has an AUM of over ₹10,000 crore and a 5-star rating from Value Research.
2. Axis Long Term Equity Fund:
The Axis Long Term Equity Fund is another top-performing ELSS fund for the last five years, with an average annual return of 17.5%. The fund invests at least 80% of its assets in equity securities across market capitalizations. The Axis Long Term Equity Fund has an AUM of over ₹28,000 crore and a 5-star rating from Value Research.
3. Aditya Birla Sun Life Tax Relief 96 Fund:
The Aditya Birla Sun Life Tax Relief 96 Fund is a consistent performer over the last decade, with an average annual return of 12.6%. The fund invests primarily in mid-cap stocks with a small allocation to large-cap stocks and has an AUM of over ₹15,000 crore.
SIP: The Best Way to Invest in ELSS Funds
For investors who are new to equity investing, investing in a lump sum may seem risky. The best way for such investors to invest in ELSS funds is through SIP. Systematic Investment Plan (SIP) allows investors to invest a fixed amount at regular intervals of time. SIP helps in averaging out the cost of investment and mitigates the risk of investing in volatile markets. Furthermore, SIP also instills discipline in investing regularly, thus promoting long-term wealth creation.
Disclaimer:
Investors are advised to evaluate their risk profile and suitability of ELSS before investing. The past performance of the fund should not be taken as an indicator of future performance. ELSS funds invest in equities that can be volatile, and investors should be aware of the inherent risks associated with equity investments.
In conclusion, ELSS funds are a great investment option for investors looking to save on taxes while also building long-term wealth. While choosing the best ELSS fund is important, it is equally important to invest through SIP to minimize risk and ensure long-term wealth creation.