ELSS funds (Equity-Linked Savings Schemes) are one of the more popular tax-saving investment options among Indian investors. Their popularity stems from the fact that they involve shorter lock-in periods (3 years), have the potential to deliver higher returns than other options, and offer tax benefits under Section 80C of the Indian Income Tax Act.
Typically, about 80% of an ELSS fund portfolio is equity-oriented and it is mainly for investors with long-term financial goals. You (as an investor) can choose from ‘dividend’ or ‘growth’ plans before investing. While growth plans give you higher returns, dividend plans provide regular pay-outs.
Investors looking for regular cash-flow often prefer dividend plans. However, according to market experts, dividend plans come in the way of reaching your investment milestones. Most advisors believe growth plans are tax-efficient, and you have the option of a systematic withdrawal plan (SWP) at your set-date, each month, if you prefer regular cash-flow.
According to the Indian Income Tax Act, long-term capital gains are tax-free up to ₹1 lakh. Beyond ₹1 lakh, you will be liable to pay LTCG at 15%. From 1st April 2018, dividend in an equity-oriented mutual fund scheme (ELSS funds, tax saving, equity, sector fund, balanced fund or equity savings fund) is tax-free in the hands of the investors. However, the mutual fund pays out a dividend distribution tax at 11.648%.
ELSS with AngelBEE:
Financial goals usually waver between saving taxes and investing. You often end up making hasty investment decisions under pressure. ELSS mutual funds can be growth or dividend based. In a growth plan, investors get a lump sum (including the dividend amount) at the end of 3 years (lock-in period). In a dividend plan, investors get a regular income, whenever dividend is declared by the fund, even during the lock-in period. You can choose any of the ELSS plans based on your risk-taking capacity and your long-term financial goals. These plans provide an excellent opportunity for new investors to get an idea of equity-oriented investing as well as save taxes.
Top 10 ELSS in India:
Despite volatile markets, mutual funds have added a staggering Rs 1.24 lakh crore to their asset base in 2018. According to latest data available with the Association of Mutual Funds in India (AMFI), there has been a growth of 5.54% in December 2018. Industry experts attribute this steady growth to a strong participation by retail investors despite the rupee depreciation, rising crude-oil prices and volatility in stock prices.
But how do investors choose the right fund? Base on your goals, you can choose a fund that has a consistent track record of performance through different market periods. Here’s our list of Top 10 ELSS funds in India:
Everything You Need to Know About ELSS:
An ELSS mutual fund is a fund that gives you the benefit of making your money grow and save taxes at the same time. A diversified portfolio also helps mitigate risks associated with the stock market and give you good returns in the long-run. It is in-fact considered a smart way to invest in comparison to other tax-saving options, because of its shorter lock-in period of 3 years. Here are some things you need to know about what ELSS funds entail:
Shorter Lock-In Period:The lock-in period of is only 3 years, after which you can either sell your investment or continue with it. In comparison, investment options like PPF and NSC have lock-in periods of 15 and 6 years, each. You can however get better returns with ELSS mutual funds rather than any other investment option its class.
Tax-Savings:Investment in an equity-linked savings scheme qualifies for tax exemption under Section 80C of the Income Tax Act, 1961. Long-term capital gains are tax-free up to ₹1 lakh. Gains over ₹1 lakh are taxed at 10%. Dividend in an equity-oriented mutual fund is taxable from 1st April 2018, at the rate of 10%.
Dividend and Growth Plans:You (as an investor) have two options for investing in ELSS i.e. dividend and growth. You can earn a regular dividend during the lock-in period if you invest in a dividend plan. In a growth plan, you get a lump-sum amount after the end of the lock-in period, which you either sell or continue with. You also have the option to switch from a dividend to growth plan if you feel you’re falling short of your investment milestone.
Diversified Portfolio and a Potential for Getting High Returns:A diversified portfolio mitigates risk of volatile stocks. Moreover, if the stock market position is favourable or if the economy is in an upturn, you have the potential to earn higher returns. Mutual funds are one of the best asset classes over the long-term.
Systematic Investment and Withdrawal:An ELSS allows you the options to either invest a lump-sum or a regular monthly amount. This makes it easier especially for those on a fixed income. Also, dividend plans allow you to withdraw a fixed sum periodically, during the lock-in period. This ensures you have a regular cash-flow.
No Minimum or Maximum Investment Limits:An ELSS is perfect for investors of any age or income level. Professionals who are just starting their career or, retired individuals, can invest as little as ₹500. On the other hand, there is no maximum limit to invest, but you should keep in mind that tax benefits under section 80C of the Indian Income Tax Act, can be availed only for an amount up to ₹1.5 lakh.
Get Better Returns With ELSS:
If you’re realistic about your returns on investment, then ELSS funds are your best choice. They have the potential to generate higher returns, as compared to other investment avenues because they’re 80% equity-oriented. Moreover, with the option of systematic investment, you can plan your investments and taxes well in advance. There will always be risks associated with any equity-based investment plan. But well-planned and regular investments can yield good returns in the long run.