How Much Tax Can You Save By Investing in ELSS Funds?

Many investors are not aware of the benefit of tax deduction under Section 80C that comes with ELSS funds. Such an equity fund is quite beneficial for long-term investment. In case you want to know about its benefits and returns, this article covers it all. 

What are ELSS funds?

ELSS stands for Equity Linked Saving Scheme. It is a type of fund scheme where the investment is done in the stock market or equities. It is an open-ended mutual fund where about 80% of the money invested is put up in stocks. Keep reading to know more about the best ELSS funds to invest in.

How do the ELSS funds work?

ELSS funds are greatly invested in stocks of some of the well-known companies. The investment is done in a specific proportion that aligns with the objective set during the investment in the fund. The list of stocks is enlisted after selecting from across market capitalization including the Large Caps, the Mid Caps as well as the Small Caps, and the industrial sectors. 

The fund manager of these best tax-saving funds that are responsible for your investment makes sure that the stocks chosen for the investment have promising returns. The main focus of this side of investment of the funds remains on the increase of the capital gained over a long period of time. Therefore, the individual conducts in-depth market research so as to ensure returns are aligned with the risk taken during the process. The calculated risk factor makes it far more profitable for investors.

Tax Benefits of ELSS funds

The gains from the ELSS do not get any special treatment in Income Tax Calculation and are done quite in the same manner as in other Equity Instruments. While the Short Term Capital Gains (STCG) demand a tax of 15%, the Long Term Capital gains (LTCG) often come with the benefit of no tax demand. The Long Term Capital gains are only taxable only in case the gains go beyond ₹1 lakh of the financial year. Even the tax demand is low which is 10% if it goes beyond ₹1 lakh.

Section 80C Income Tax Act, 1961 allows for a tax benefit that may go up to the amount of ₹46,800 as per the rule set by the Income Tax department. With ELSS Tax Saver Mutual funds Such a benefit can be availed for an investment of up to ₹1.5 lakhs per year. However, no such tax benefit can be availed on investments over ₹1.5 lakhs per year in ELSS. Obviously, investments in ELSS can be made over ₹1.5 lakhs but no tax benefits are promised to them. 

What are the Benefits of investing in these funds?

Although the main motive behind spending in these best tax-saving funds is to gain tax benefits, an investor can also be assured of many other benefits. 

1. ELSS has the shortest lock-in period among all other investment options like ULIPs that may be considered for tax saving. With a promise of greater liquidity in the medium term, the lock-in period is only 3 years after which you can only sell it. However, it is always a good idea to keep it for better returns over a long period.  

2. ELSS has a diversified portfolio which decreases the chances of risk. It also ensures that no opportunity is missed by the investor. 

3. ELSS promises to provide higher returns as the wealth increases greatly in a medium to long-term investment. The potential return is much higher when compared to the traditional options like PPF or FDs where the return is fixed. 

4. The monthly SIP option makes it quite easier to invest regularly without much hassle. All of the transactions under SIP are treated independently and so the gains earned are against these individual units. 

Table of the top ELSS mutual funds 

Conclusion