Tax Savings Solutions - Equity Linked Savings Scheme (ELSS)
 

Equity Linked Savings Scheme (ELSS) is a tax saving scheme linked to the equity market. As per Income Tax Act’s Section 80C, investments up to Rs. 1,00,000 are eligible for deduction from the gross total income, reducing the total taxable income of the tax-payer.

For example, if your total annual income is Rs. 3,00,000 and you invest Rs. 1,00,000 in ELSS, then your taxable income will be only Rs. 2,00,000.

  
Parameter / Scheme PPF NSC ELSS
Returns 8% 8% Market-linked
Interest Receipt On Maturity On Maturity Depends on Performance
Tenure 15 years 6 years Minimum 3 years
Tax Benefits Sec 80C Sec 80C Sec 80C
Minimum Investment Rs. 500 p.a. Rs. 100 Lump sum: Rs. 5000
Maximum Investment Rs. 70,000 Rs. 1,00,000 No Upper Limit
Monthly Plans N.A N.A SIP : Rs. 500
Note: The instruments illustrated above are different in nature having different lock in periods and different risk factors and the comparision is given for the purpose 
          of general understanding only.

  • ELSS exploits the potential of equities
    As with an equity fund, ELSS funds invest a large part of the fund (usually 65-100%) in equity. With the Indian economy possessing strong fundamentals and corporate earnings showing strong growth potential, equities as an asset class look set to provide attractive returns
     

  • Lowest Lock-in period
     While the maturity period of other tax saving instruments like NSC is 6 years and PPF is 15 years, ELSS has the shortest lock-in period of all the tax saving instruments under Section 80C. Your investment is LOCKED for a period of 3 years. i.e., once invested in an ELSS scheme, your money cannot be taken out for 3 years. But this is a blessing in disguise, because ELSS schemes generally yield healthy returns during a 3-year period. Persons who are looking for capital appreciation and tax benefits amounting to Rs.1,00,000, should consider investing through ELSS
     

  • Dividend payout
     An investor can opt for a dividend option and get a part of the investment back during the lock-in period itself, by way of dividend payout
     

  • SIP option
     The best way to invest in ELSS is perhaps via Systematic Investment Plan (SIP). With SIP, you can invest a small amount every month for a specific time period. In SIP, the investor can take advantage of fluctuations in the stock market and get the benefit of averaging. So the investor will get more units when the market is down and get fewer units when the market is up

    For e.g. If you are investing Rs. 1000 every month, you will get 100 units when the Net Asset Value (NAV) is 10 and will get 50 units when the NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations through ‘rupee costs averaging’.
     

  • Tax benefits - no tax on capital gains and dividends
     The profits on the sale of ELSS units are treated as long-term capital gains (assuming that the units are sold after the completion of a 3-year lock-in period), and as per current tax laws, these are not subject to tax. Also, there is no dividend distribution tax on equity investments and dividends earned are tax free in the hands of the investor
 
 OUR RECOMMENDATIONS
 
  • ICICI Prudential Tax Plan

 
  • Fidelity Tax Advantage Fund

  • HDFC Tax Saver Fund

 

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