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Equity Linked Savings Scheme: Tax Exemption

ELSS (Equity Linked Savings Scheme) is a tax-saving investment option offered by mutual funds that provides both tax benefits under Section 80C of the Income Tax Act and potential capital gains. It has the shortest lock-in period of three years compared to other tax-saving instruments like fixed deposits and PPF. Over the past 5 years, top ELSS funds have achieved returns between 22-26%, higher than market returns over the same period. Key benefits of ELSS include tax savings, high earning potential due to equity exposure, shorter lock-in, and option of dividends.

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Bhushan Raval
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25 views

Equity Linked Savings Scheme: Tax Exemption

ELSS (Equity Linked Savings Scheme) is a tax-saving investment option offered by mutual funds that provides both tax benefits under Section 80C of the Income Tax Act and potential capital gains. It has the shortest lock-in period of three years compared to other tax-saving instruments like fixed deposits and PPF. Over the past 5 years, top ELSS funds have achieved returns between 22-26%, higher than market returns over the same period. Key benefits of ELSS include tax savings, high earning potential due to equity exposure, shorter lock-in, and option of dividends.

Uploaded by

Bhushan Raval
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Equity Linked Savings Scheme

ELSS (Launched by Mutual Fund Houses) is an investment option that


provides tax saving benefits as well as capital gains.

Tax Exemption
Under Section 80C of Income Tax Act, you have the option to invest
a sum of Rs.1,00,000/- and avail exemption. The Equity Linked Saving
Scheme (ELSS) is one such investment option.
Investment in ELSS
has gained returns as high as 22% – 26% in the past 5 years

It is an established fact that in the long run equity gives a much higher inflation
adjusted returns when compared to any other investment.
Returns
The top 5 ELSS funds have given returns from 30
22 per cent to 26 per cent compounded 25
annually over the past 5 years. This is again
20
higher than the market (Nifty) returns over
Returns
the past 5 years which is at 19 per cent. 15

10

0
ELSS NIFTY
Lock-in period
as compared to other Tax saving schemes

An investment in an ELSS scheme has a lock in of


three years.
Instrument Lock-in Period
3 Years (or 1095 days) from the date of
ELSS allotment of the respective Units
Bank Fixed Deposit 5 Years
PO Time Deposit 5 Years
NSC 6 years
PPF 15 Years (Partial withdrawal after 6 years)
Key features of ELSS Funds

Tax benefits.
Earning potential is very high as it is equity linked
scheme.
A lesser lock-in period
Investor gains money during the lock-in period
and he also have the option of dividend.
Systematic Investment Plan is a part of ELSS.
Benefits of investing in ELSS
over other tax-saving instruments
Investments in ELSS enable an investor to claim deductions under section 80C
upto Rs 100,000. Since this is an equity-linked scheme, the earning potential is
very high (although at a higher risk) as compared to other tax-saving
instruments.

The Systematic Investment Plan (SIP) is an effective way of investing in ELSS as


the concept of rupee cost averaging and the power of compounding work well.

The lock-in period is the shortest, three years, as compared to other tax saving
instruments. The maturity period for NSC and PPF is six years and 15 years
respectively.

According to current tax laws, long-term capital gains on investment in equity


oriented funds and the dividends received on these investments are tax-free
under section 10(38) and section 10(35) respectively in the hands of the
investor.
Investment strategy for ELSS funds.
Tips to invest

Your risk appetite should at all times determine


total investments in tax-saving funds.
Don't go overboard in the segment ignoring the
risk involved.
Use the SIP route for investing in tax-saving
funds.
It is always advisable for investments in equity
linked instruments to be for the long term.
Reduces strain on you at the end of the financial
year when most investors conduct their tax-
planning.
Past Performance of the top rated ELSS
Schemes
DTC
The New Direct Tax Code (DTC) is said to replace the
existing Income Tax Act of 1961 in India

DTC removes most of the categories of exempted


income:
•Unit Linked Insurance •Long term infrastructures bonds,
Plans (ULIPs), •house loan principal
•Equity Mutual Funds (ELSS), repayment, 
•Term deposits, •stamp duty and
•NSC (National Savings •registration fees on purchase of
certificates), house property will loose tax
benefits.

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