Inย this article, weโll talk about the bestย ELSSย Mutual Funds and discuss all you need to know about them.
Investors seek out investment possibilities that will enable them to build wealth, receive consistent returns, and/or reduce their tax burden.
With the marketโs availability of investment plans, the bulk of them offer returns that are subject to income tax laws.
ELSS funds can help in this situation. Equity mutual funds that save on taxes are known as Equity Linked Savings Schemesย or ELSS Funds.
What is ELSS Fund?
ELSS funds are equity funds that invest a sizeable portion of their capital in equity or goods that contain equity.
As suggested by the name, an ELSS fund is an equity-oriented plan with a three-year lock-in period.
Recently, many people have used ELSS plans to profit from tax advantages. If you invest in ELSS plans, you can earn a tax exemption on your investment up to a maximum of Rs. 150,000.
How best ELSS Mutual Funds Work?
Diversified equity funds include ELSS Funds. These funds invest primarily in a specific percentage of listed firm equity in accordance with their investment objectives. When choosing the companies, market capitalization (Large Caps, Mid-Caps, Small Caps), as well as industrial sectors, are taken into account.
These funds aim to maximize wealth appreciation over the long term. The fund management chooses shares following careful market research in order to generate the optimum risk-adjusted portfolio returns. Learn about tax-saving techniques so you can save more on taxes.
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Features of best ELSS Mutual Funds
The following are some crucial ELSS fund characteristics:
- At least 80% of the total diversified stock is invested inย equities and products with an equity component.
- The fund makes diversified stock investments across a range of market capitalizations, themes, and industries.
- There is no maximum investment tenure. A three-year lock-in period does exist, though.
- The invested amount is exempt from taxes under Section 80C of the Income Tax Act.
- Income is taxed in accordance with the current tax laws and regarded as LTCG.
Who Should Invest in the best ELSS Mutual Funds?
โข Salaried Individuals
Your Employee Provident Fund (EPF), a guaranteed income vehicle, receives a certain percentage of your pay as contributions. If one wants to balance risk and return on their investment portfolio, ELSS is the best option. ELSS investments have the potential for remarkable returns as well as being tax deductible under section 80C.
Despite the fact that alternative products, such as Unit Linked Insurance Plans (ULIPs), also provide tax advantages, they have a longer lock-in period and lower return potential.
For instance, PPF has a 15-year lock-in duration whereas ULIPs have a five-year lock-in. The best ELSS mutual Funds have a three-year lock-in period, which is the shortest.
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โข First-time Investors:
ELSS is a fantastic alternative for beginning investors since, in addition to tax benefits, you also get a taste of investing in mutual funds and stocks. Equity investing demands persistence and the commitment to hold positions for the long term.
Due to short-term volatility in the fundโs performance brought on by changes in the equity market, investors sometimes lack this discipline and withdraw from equities investments. A long investment period is committed to by the investor thanks to the lock-in.
You may invest in the best ELSS mutual funds through a SIP, which assures regular investing, just like with any equity investment. SIP aids in cost averaging in rupees. When the markets are negative, SIP allows you to acquire more units, which helps you when they become positive.
List of Best ELSS Mutual Funds
| Mutual fund | 3ย Yr. Returns annually | Start SIP |
| Quant Tax Plan Direct-Growth | 37.35% | Rs. 500 |
| Parag Parikh Tax Saver Fund Direct-Growth | 23.80% | Rs. 1000 |
| Canara Robeco Equity Tax Saver Direct Growth | 19.48% | Rs. 500 |
| Mirae Asset Tax Saver Fund Direct-Growth | 18.04% | Rs. 500 |
| IDFC Tax Advantage (ELSS) Direct Plan-Growth | 21.86% | Rs. 500 |
| Bank of India Tax Advantage Direct-Growth | 21.20% | Rs. 500 |
| PGIM India ELSS Tax Saver Fund Direct-Growth | 19.34% | Rs. 500 |
| Union Long-Term Equity Fund Direct-Growth | 17.63% | Rs. 500 |
| DSP Tax Saver Direct Plan-Growth | 17.15% | Rs. 500 |
| Kotak Tax Saver Fund Direct-Growth | 16.59% | Rs. 500 |
A closer look at the Best ELSS Mutual Funds
1 Quant Tax Plan Direct-Growth
Performance of the Fund: The Quant Tax Plan Fund generated annualizedย returns of 37.35% over the last three years and 21.87% over the previous five years. The Equity subcategory of Quant Mutual Funds includes the Quant Tax Plan Fund.
The minimum investment amount for the Quant Tax Plan Fund is โน500 for lump sum investments and โน500 for SIP investments.
2 Parag Parikh Tax Saver Fund Direct-Growth
Performance of the Fund: The Equity subcategory of PPFAS Mutual Funds includes the Parag Parikh Tax Saver Fund.
The minimum investment amount for the Parag Parikh Tax Saver Fund is 500 for lump sum investments and 1,000 for SIP investments.
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3 Canara Robeco Equity Tax Saver Direct Growth
Performance of the Fund: Over the last three years, the Canara Robeco Equity Tax Saver Fund has generated annualizedย returns of 19.48% and 14.66%, respectively. The Equity segment of Canara Robeco Mutual Funds includes the Canara Robeco Equity Tax Saver Fund.
Canara Robeco Equity Tax Saver Fund requires a minimum investment of 500 in both lump sum and systematic investment plans (SIPs).
4 Mirae Asset Tax Saver Fund Direct-Growth
Performance of the Fund: Over the last three years, the Mirae Asset Tax Saver Fund has produced annualizedย returns of 18.04% and 13.54%, respectively. The Equity subcategory of Mirae Asset Mutual Funds includes the Mirae Asset Tax Saver Fund.
The minimum investment amount for Mirae Asset Tax Saver Fund is โน500ย for lump sum investments and โน500ย for SIP investments.
5 IDFC Tax Advantage (ELSS) Direct Plan-Growth
Performance of the Fund: Over the previous three and five years, the IDFC Tax Advantage (ELSS) Fund has generated annualizedย returns of 21.86% and 11.67%, respectively. The Equity division of IDFC Mutual Funds includes the IDFC Tax Advantage (ELSS) Fund.
The minimum investment amount for the IDFC Tax Advantage (ELSS) Fund is โน500 for lump sum investments and โน500 for SIP investments.
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6 Bank of India Tax Advantage Direct-Growth
Performance of the Fund: The Bank of India Tax Advantage Fund generated annualizedย returns of 21.2% over the last three years and 12.22% over the previous five years. The Equity subcategory of BOI AXA Mutual Funds includes the Bank of India Tax Advantage Fund.
The minimum investment amount in the Bank of India Tax Advantage Fund is โน500ย for lump sum investments and โน500ย for systematic investment plans.
7 PGIM India ELSS Tax Saver Fund Direct-Growth
Performance of the Fund: The PGIM India ELSS Tax Saver Fund generated annualized returns of 19.34% over the last three years and 12.6% over the previous five years. The Equity division of PGIM India Mutual Funds houses the ELSS Tax Saver Fund.
The minimum investment amount for the PGIM India ELSS Tax Saver Fund is 500 in both lump sum and SIP transactions.
8 Union Long-Term Equity Fund Direct-Growth
Performance of the Fund: Over the previous three and five years, the Union Long Term Equity Fund has produced annualizedย returns of 17.63% and 11.56%, respectively. The Union Long Term Equity Fund is a part of the Union Mutual Fundsโ Equity subcategory.
The minimum investment amount for the Union Long Term Equity Fund is โน500 for lump sum investments and โน500ย for systematic investment plans.
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9 DSP Tax Saver Direct Plan-Growth
Performance of the Fund: The DSP Tax Saver Fund generated annualizedย returns of 17.15% over the last three years and 12% over the previous five years. The DSP Tax Saver Fund is a member of the DSP Mutual Fundsโ Equity group.
The minimum investment amount for the DSP Tax Saver Fund is โน500 for lump sum investments and โน500ย for SIP investments.
10 Kotak Tax Saver Fund Direct-Growth
Performance of the Fund: The Kotak Tax Saver Fund generated annualizedย returns of 16.59% over the last three years and 12.88% over the previous five years. The equity subcategory of Kotak Mahindra Mutual Funds includes the Kotak Tax Saver Fund.
Kotak Tax Saver Fund requires a minimum investment of โน500ย in both lump sum and systematic investment plans (SIPs).
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Why should you invest in the best ELSS Mutual Funds (Tax Saving)?
ELSS Tax Saving Funds provide many advantages, such as:
- Diversificationโ The majority of ELSS funds make investments in a broad range of businesses, from small-cap to large-cap, and in a variety of industries. You can diversify the elements of your investment portfolio as a result.
- Low minimum amountโ The majority of ELSS plans allow investors to start with as little as Rs. 500. This makes sure that you may start investing right away without needing to build up a sizeable investible corpus.
- SIPโ Although you may deposit a large sum of money in an ELSS program, most investors prefer the SIP approach since it enables them to make small investments while still providing them with the chance to benefit from tax advantages.
Although you are free to invest as much as you like, Section 80C of the Income Tax Act places a cap on the tax advantages you can claim. In addition, beyond the required 3-year lock-in time, you have the choice to keep investing for as long as you choose.
Tax benefits of best ELSS Mutual Funds?
As previously mentioned, Section 80C of the Income Tax Act permits a tax deduction for the principal invested in an ELSS plan.
Because it is a cumulative deduction advantage, investments made in any of the listed instruments, such as ELSS, NSC, PPF, etc., are eligible for a tax deduction of up to Rs. 1.5 lakh under the aforementioned clause. These programsย also have a three-year lock-in term that is required.
As a result, when you redeem the units, you realize long-term capital gains (LTCG). Up to Rs. 1 lakh in one financial year, these gains are not taxed.
Any LTCG beyond this threshold is subject to a 10% tax on profits over Rs. 1 lakh, exempt from adjustment.
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Frequently Asked Questions
How long should I stay invested in the best ELSS Mutual Funds?
You must keep your investment in ELSS Mutual Funds for at least five years since they are equity funds, which means they invest in company stocks.
Where do best ELSS Mutual Funds invest?
ELSS Mutual Funds are required to place a minimum of 80% of their assets in stocks. There is no restriction on the industry they must allocate to or the minimum size of a firm.
This gives funds in this category the flexibility a fund manager for a portfolio believes has the potential to provide the highest results.
A fund manager can also change the portfolio on how well he understands the markets. Despite this flexibility, the bulk of funds in this category are large-cap heavy, meaning that the top 100 firms in India account for the majority of their investments.
They do allocate to mid- and small-capitalization companies, although less so than to large-cap companies.
Are ELSS Mutual Funds high risk?
ELSS Mutual Funds may be volatile in the near term since they invest in stocks. Long-term, nevertheless, the danger is significantly reduced.
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What kind of returns can I earn from the best ELSS mutual funds?
Over the past five years, ELSS Funds have produced returns of, on average, 10.29% every year. Their annualized returns over three and ten years are 16.62% and 15.01%, respectively.
Should I invest in the best ELSS Mutual Funds?
You receive tax savings and wealth building via ELSS Funds. Your investments in these funds are tax deductible up to a maximum of Rs. 1.5 lakh under Section 80C. Therefore, you can avoid paying up to Rs. 46,800 in taxes by investing these monies.
Wealth generation is the second advantage. You can link your investments with your long-term objectives because you are investing in stocks. They also have the shortest lock-in time out of all tax-saving choices, which is a bonus.
