ELSS or Insurance, Deduction under section 80C, as well as Better returns in future
Want 80C deduction with Mutual fund Investment.
Then, you can choose ELSS (Equity Linker Saving Scheme) now first lets understand some basic things.
ELSS (Equity Linked Saving Scheme)
ELSS are equity based funds where money received from investors is invested majorly into equity shares.
These funds are managed by professionals that are called fund managers
and comes with a lock in period generally of 3 years and tax saving benefits under Income Tax Act,1961 under section 80C.
The deduction makes them famous tool for tax saving among salaried persons. The maximum deduction under this section is ₹1.50 Lacs.
What makes ELSS so attractive for Investment?
Reasons of popularity of ELSS
ELSS is purely equity based investment schemes with their majority of investment in equity shares and returns are taxable, still they are offering higher returns than other options under 80C like provident fund (PF), public provident fund (PPF) and ULIP’s.
- Investment made by these funds is in equity markets having higher returns in long run vis a vis tax benefits. As per historical analysis of ELSS they have generated returns as high as 12% which is far much higher than 8% returns of PPF.
- ELSS has lock in period of just 3 years which is better if compared with PPF, NSC and EPF which comes with a lock in period of 5 years making ELSS a better choice to bet upon.
- ELSS comes with an option to switch to other ELSS fund in case you are not happy with its performance, this option is not there in other options, even if you are investing in ULIP you can only switch to funds that are offered by that ULIP Company only, so this switch option is making ELSS a handy bagger.
- As ELSS carries a lock in period they make it a more discipline investment as you know that you can’t touch it in its lock in period of 3 years thus giving you higher returns.
Chart showing return of investment under various Investment options
| Insurance or PPF | Other MF’s | ELSS | |
| Investment | ₹ 1,00,000 | ₹ 1,00,000 | ₹ 1,00,000 |
| Tax Benefit | 20%*(Assuming Tax bracket of 20%) | 0% | 20% |
| Effective Investment | ₹ 80,000 | ₹ 1,00,000 | ₹ 80,000 |
| Return | 6-7% | 12% | 12% |
| Effective return on Investment (CAGR) | 42.57 – 45.97% (As effective Investment was ₹ 80,000) | 40.49% | 75.61% (As effective Investment was ₹ 80,000) |
So anyone who wishes to stay invested for long term and want 80C Deduction and are open to Risk can invest in Mutual funds to get benefits from market and better returns.
They comes with options of SIP or lumpsum investments.
Investors can either invest in bulk through lumpsum investment option or can invest in small monthly/quarterly installments through SIP options.
SIP comes with a few advantages:
- It allows you to invest in mutual funds in small installments as low as Rs. 500.
- It also averages the cost per unit of mutual funds as you are investing monthly.
- Give you financial discipline to save.
But many investors do financial planning in Feb or March making them pay in though Lumpsum payment as they have to save Tax and Lumpsum payment is only option left for them.
ELSS means Equity Linked Saving Schemes.
ELSS generally comes with a Lock in Period of three (3) Years.
Reason to Invest in ELSS :
- Tax Saving upto Rs. 46800/- on investment of Rs. 1.50 Lakh.
- Higher return in Long Run.
- Lesser Lock in Period of 3 Years than other tax saving methods.
- Option to switch between ELSS.
- Disciplined investment due to Lock-in of 3 Years.
The gain arising from ELSS schemes upto Rs. 1 Lakh in a year are exempt from tax while above Rs. 1 Lakh are taxed @ 10% as Long Term Capital Gain (LTCG)
ELSS comes with two options i) SIP or ii) Lumpsum Investment option.
- It allows you to invest in mutual funds in small installments as low as Rs. 500.
- It also averages the cost per unit of mutual funds as you are investing monthly.
- Give you financial discipline to save.
Investors should start investing in Mutual Funds with start of new financial year through equal monthly SIPs, it helps you averaging the cost of Investment.
Which ELSSS to be purchased for tax savings…
Hi Meenu,
Thanx for showing interest in Topic, please share your email id to send the list of best ELSS operating to decide from
My I’d is anytimemenu@gmail.com pls share the list
Hi list is shared with you, please also do your own study before arriving to any decision.
Is ELSS is taxable after 3 years?
Dear Vaibhav,
Investment in ELSS are tax free under Sec 80 C of Income Tax Act and the gain arising from these schemes upto Rs. 1 Lakh in a year are exempt from tax while above 1 Lakh are taxed @ 10% as Long Term Capital Gain (LTCG).
What is the difference between ELSS and normal Equity Mutual Funds
Dear Anjeet,
ELSS comes with a 3 years lock in Period while Equity funds do not have any lock in Period.
You get Rs. 1.5 Lakh deduction with ELSS in 80C of Income Tax while equity funds do not carry any such deduction.