Investing in ELSS is an effective way to create wealth while claiming tax deductions.
While saving involves putting money aside, investing takes the act of saving a step further and puts your money to work for you.
You can choose to invest in creating wealth and save for financial goals like education or purchasing a home. What’s even better is that some investments also offer you the option of saving on taxes while achieving your goals.
So, PPF (Public Provident Fund), NSC (National Savings Certificate), and Tax Savings Fixed Deposits (FD) – are all popular investment options that help you save on taxes.
What is ELSS?
ELSS or Equity Linked Savings Schemes are mutual funds that invest in equity and equity-related securities.
They are professionally-managed that and can help you claim tax deductions under Section 80C of the Income Tax Act,1961.
The benefits of investing in ELSS
ELSS = the only mutual fund that is eligible for tax deductions. You can save up to ₹46,800 / in a financial year by investing in ELSS. While there will be no tax benefit if you exceed the limit of ₹1.5 lacks, investing in ELSS has a few notable advantages. Please take a look at some of them below.
- ELSS has a show that has a shorter lock-in period of 3 years, unlike the PPF, NSC & Tax Saver FD, which have a 5-15-year lock-in period.
- ELSS funds can offer higher returns as they invest primarily in equity securities and those that are equity-related. The returns are usually higher than other investment options with tax benefits and can be approximately 12%-15% annually as per historical data. Higher returns also help you beat inflation- the rising cost of everything because of the falling value of the rupee
- You can invest in ELSS funds flexibly by investing a lump sum at one go, or you can choose to make regular investment installments (SIPs) if you invest over time comfortably.
Read: Guide to Planning Your Investment
A quick comparison
Take a quick look at how ELSS compares to PPF, Tax-saver FDs, and NPS in the table below.
| Investment | ELSS | PPF | NSC | Tax-Saver FD |
| Lock-in | 3 Years | 15 Years | 5 years | 5 Years |
| Annual Returns | 12%-15% | 7.10% | 6.80% | 6.00% |
| Risk | Market-related risk | Low risk | Low risk | Low risk |
| Minimum Investment | ₹ 500 | ₹ 500 | ₹ 1,000 | ₹ 100 |
| Tax Benefit | Yes | Yes | Yes | Yes |
| Maximum Deduction | ₹ 1,50,000 | ₹ 1,50,000 | ₹ 1,50,000 | ₹ 1,50,000 |
| Premature/Partial Withdrawal | Not Allowed | Allowed only after 5th Year | Only under special circumstances | Not Allowed |
| Taxation on Returns | LTCG Applicable | Tax-Free | Tax Applicable | TDS Applicable |
Investing in ELSS
Investing in ELSS is easy when you have an app like EduFund that is simple to use. It is also essential to know which ELSS to invest in.
And here is one that you can make a note of if you’re making a list of top ELSS funds to invest in.
ELSS of the Month – Quant Tax Direct plan- growth
- Objective – The investment objective of this scheme is to generate returns on the invested amount by predominantly investing it in a well-balanced portfolio with equity holdings that have growth potential.
- Suitability – For any investors who are looking to invest for at least three years while receiving an additional benefit of tax saving apart from higher return expectations from this fund.
- Risk – High risks as the fund is volatile and utterly dependent on the market movement. It shows volatility greater than that of the category average. Therefore the returns are not guaranteed.
| Trailing Returns % | Fund | Benchmark | Category |
| 3 Years Annualized | 50.83 | 19.91 | 21.69 |
| 5 Years Annualized | 33.01 | 16.13 | 15.29 |
| Invested | Returns | Accumulated | Annualized Return (XIRR) | Cumulative Return |
| ₹ 10,90,000 | ₹ 26,66,834 | ₹ 37,56,834 | 25.95% | 244.66% |
So far, this fund has held the highest rank in ELSS for the last five quarters, and it can be one of the best options to save tax.
If you’ve already invested in this fund, consider continuing to invest. If you haven’t supported it yet, consider this fund as an option to start saving on taxes.
FAQs
Are ELSS funds tax-saving funds?
ELSS, or Equity Linked Savings Scheme, allows you to save on taxes under the 80 C section of the Income Tax Act 1961.
How much can I save on taxes through ELSS mutual funds?
You can invest up to 1.5 lakhs/ year on taxes by investing in ELSS mutual funds. Even though this is the cap for saving on taxes, you can invest more than 1.5 lakhs on ELSS in a year.
How can I invest in ELSS funds online?
You can simply download the EduFund app and explore your options in the “Invest” section of the app.
