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10 points about tax saving through investment in ELSS Mutual Funds

There are various tax saving investment options available to an individual to save tax u/s 80C of the Income Tax Act. One of the best ways to grow money along with saving tax is to invest in Equity linked Savings Scheme. Generally people rush to make tax-saving investments at the end of the year which often results in flawed decisions.

Investments in ELSS should be treated differently from other tax saving investment options such as PF, NSC, Tax saving Fixed Deposit etc, which offers fixed rate of returns. Being an equity investment, it is exposed to market risks and its performance depends to a large extent on the points of entry and exit.

Here are the things you should know and keep it in mind before making investment in ELSS.

  1. Meaning – An Equity Linked Savings Scheme (ELSS) is an open ended Equity Mutual Fund. Investment in ELSS fund qualifies for income tax exemption u/s 80C of the Income Tax Act.


  1. Eligibility – Only individual and HUF taxpayers can claim the benefit.


  1. Lock-in Period – 3 years. After the lock-in period, one can withdraw the amount and spend for any purpose.


  1. Dividend – any dividend earned on the fund is tax-free


  1. Minimum and Maximum Investment – the minimum investment per year is Rs.500.There is no upper limit for investment. However, investment up to Rs.150000 per year can be claimed as deductions from total income.


  1. Capital Tax – On withdrawal after 3 years, any capital gain earned on this fund is exempt from tax u/s 10 (38)


  1. Returns – Unlike Bank Fixed Deposit, there is no guarantee on the return and appreciation of the value of the fund. However, the past track records show a decent return (over 15% per year post tax return) on top rated ELSS funds.


  1. Advantage over other Tax saving investment options – ELSS comes with a short lock-in-period of 3 years. The maturity period of NSC is 6 years, bank FD is 5 years and PPF is 15 years.


  1. Best way to invest – One can opt for Systematic Investment Plan (SIP) to invest in ELSS. Making investment is fairly simple – open a demat account in your bank (say ICICI or HDFC), give SIP instructions for monthly payments. Annual investment of Rs.150000 can be invested at Rs.12500 per month. SIP is proved to be the best way to invest in Equity market or Equity related Mutual funds.

  1. Recommended Funds are –
  • Axis Long Term Equity Fund
  • Reliance Tax Saver Fund
  • ICICI Prudential Tax Plan – Regular Plan
  • BNP Paribas Tax Advantage Plan Fund or any other good fund recommended by investment specialists.

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About CA Prakash Chartered Accountant Bangalore

CA Prakash Chartered Accountant Bangalore
CA Prakash is a practicing chartered accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]