Sunday, September 21, 2014

Equity Linked Savings Schemes (ELSS) mutual fund tool to save tax


There are various tax saving option which is suggested by our colleagues, chartered Accountants and Tax Experts, one of option which is investment in ELSS mutual fund. Equity Linked Savings Schemes (ELSS) offers an option to obtain tax benefits and an opportunity to harness the potential growth of investing in the equity market.

ELSS is a diversified equity fund which has lock in period of 3 years. ELSS is equity linked Saving scheme in which one can invest by opting option of systematic investment plan (SIP) i.e. by Investment fixed Amount every Month . This is option is viable person of high risk appetite. 

ELSS invests a majority of its corpus in equity and equity related products. It comes with a lock in period of three years and is suitable for investors having a high risk profile. ELSS schemes are open ended, that is, investors can subscribe to the fund anytime.

Tax saving benefits 
  • One can get deduction u/s 80 C due to which there is tax saving on Amount of Rs 1 lakhs. 
  • Long term Capital gain arises on ELSS is exempt under section 10(38) because ELSS has lock in period of 3 years.
  • Dividend received from these funds is also non taxable.
In nutshell all the Earnings from ELSS fund are not taxable, but at the same time one must take into consideration of market Risk attached   with these funds.   

Comparing with other tax saving option 

Bank FD
Tax free
Tax free
Lock in periods
3 years
15 years
6 years
5 years for tax benefits
On analyzing the above we can conclude that from  the point of view tax benefits  ELSS is better option for person who is ready to bear the risk  I e Risk takers . While at the same time combination   of ElSS & any one other tax saving option is also not bad option for person who is conservative on risk. Example by opting 60 percent in PPF, NSC & FD while 40 percent in ELSS one can at least one can secure principal Amount of RS 1 lakh.   

Returns of ELSS are depend upon the movement of market , so over long term prospect investing in ELSS is definitely good tool to avail tax benefits along the high returns and growth.  if the investor is willing to be risk appetite


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