As per SEBI regulations, an ELSS fund has to invest a minimum of 80% of its assets in equity and equity-related instruments.
It is a savings scheme that comes with tax benefits. An individual can claim a tax rebate of an amount up to Rs. 1.50 lakh and save up to Rs. 46,800/- in a financial year.
Advantages:
- Tax Deduction: Any investor investing in an ELSS fund can claim the tax benefit of an amount up to Rs. 1.5 Lakh under Section 80C of the Income Tax Act and save up to Rs. 46,800/- a year.
- Shortest Lock-in Period: Only the ELSS fund is the scheme that comes with the shortest lock-in period when compared to other tax savings options available.
- Higher Returns: ELSS is the only scheme among other options available that have delivered higher returns.
The habit of Savings: An individual can develop the habit of savings by investing in these funds through SIP (Systematic Investment Plan) with as low as Rs. 500.
Top 10 ELSS mutual funds
| S.No. | Fund Name | 3-Yr Annualized Performance |
| 1 | Quant Tax Plan Direct Option Growth Plan | 36.22 % |
| 2 | Bank of India Tax Advantage Fund Direct Plan-Growth | 25.13 % |
| 3 | IDFC Tax Advantage (ELSS) Fund Direct Plan-Growth | 22.18 % |
| 4 | Canara Robeco Equity Taxsaver Fund Direct Plan Growth Option | 21.59 % |
| 5 | Mirae Asset Taxsaver Fund Direct Plan-Growth | 20.94 % |
| 6 | UTI Long-Term Equity Fund Growth Option Direct | 19.99 % |
| 7 | Mahindra Manulife ELSS kar Bachat Yojana Direct Plan-Growth | 19.91 % |
| 8 | DSP Tax Saver Fund Direct Plan-Growth | 19.61 % |
| 9 | PGIM India ELSS Tax Saver Fund Direct Plan-Growth | 19.32 % |
| 10 | UTI Long Term Equity Fund Growth Option Direct | 18.87 % |
Source: Morningstar
1. Quant Tax Plan Direct Option Growth Plan
Fund analysis:
The fund’s objective is to generate Capital Appreciation by investing predominantly in a well-diversified portfolio of Equity Shares with growth potential. The risk grade is high and the return grade is high.
The fund has a beta of 0.99 which means that the fund movement is very much relative to the market movement. The fund has a high risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Well-diversified portfolio.Tax benefit. | Highly volatile. |
2. Bank of India Tax Advantage Fund Direct Plan-Growth
Fund analysis:
The fund has outperformed the category average over the long-term period. The risk grade is below average and whereas the return grade is high.
The fund has invested majorly in large-cap growth companies with 83.14% of its assets. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Major holding is in Bluechip companies. Tax benefit. | Fund has underperformed the category average in 1-Yr trailing returns. |
3. IDFC Tax Advantage (ELSS) Fund Direct Plan-Growth
Fund analysis:
The fund is a consistent performer and has been rated 4 stars by Morningstar. The risk grade is high, and the return grade is high.
The fund has a beta of 1.16 indicating an aggressive approach toward the stock selection. Along with investing in large-cap companies, the fund has exposure to mid-cap (19.32%) & small-cap (13.60%) companies. The fund has a high risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was rising. Tax benefit. | Fund has underperformed the category average when the market was falling. |
4. Canara Robeco Equity Taxsaver Fund Direct Plan Growth Option
Fund analysis:
The fund has given consistent performance over the period. The risk grade is below average, and the return grade is high.
The fund flows growth style of investing and the majority of holding is in large-cap companies. The fund holds a well-diversified portfolio.
The fund has invested across market capitalization and sectors. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was falling. Tax benefit. | Fund has underperformed the category average when the market was rising. |
5. Mirae Asset Tax Saver Fund Direct Plan-Growth
Fund analysis:
The fund is one of the top-performing funds in its category. It has outperformed the category average over the long-term period. The fund is rated 5-star by Morningstar. The risk grade is average, and the return grade is high.
The fund follows a blended style of investing which indicates that the fund is holding both value and growth stock in the portfolio.
The fund has good assets under the management of Rs. 11,494.59 crore, which shows the reliability of investors. The fund has a high risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was falling. Tax benefit. | Assets Under Management are high. |
6. Union Long-Term Equity Fund Direct Plan Growth Option
Fund analysis:
The fund has outperformed the category average over the long term. The risk grade is average, and the return grade is high.
The fund has a low beta of 0.95 indicating that the movement of the fund is less relative to the market movement. The fund has invested 85.27% in large-cap companies and the rest is in mid-cap (13.13%) & small-cap (1.60%) companies.
The fund has invested across sectors. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Well-diversified.Tax benefit. | The fund has a high expense ratio. |
7. Mahindra Manulife ELSS Kar Bachat Yojana Direct Plan-Growth
Fund analysis:
The fund has given stable returns over the different trailing time periods. The risk grade is average, and the return grade is average
The fund has a well-diversified portfolio of 49 holdings spread across sectors. The fund has majorly growth stocks in its portfolio. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was rising. Tax benefit. | Low Assets Under Management. |
8. DSP Tax Saver Fund Direct Plan-Growth
Fund Analysis:
The fund’s objective is to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity-related securities of corporates and to enable investors to avail of a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.
The risk grade is above average, and the return grade is above average. The fund has a beta of 1.01 indicating fund movement is very much related to the market movement.
The fund is rated 4-star by Morningstar. The fund has a relatively high risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was falling. Tax benefit. | The return grade is above average. |
9. PGIM India ELSS Tax Saver Fund Direct Plan-Growth
Fund analysis:
The fund has outperformed the benchmark and the category marginally over the long-term period. The fund is rated 5-star by Morningstar. The risk grade is average, and the return grade is above average.
The fund follows a blended style of investing, which means it has both value and growth stocks in its portfolio. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Consistent performer.Tax benefit. | The fund has a high expense ratio. |
10. UTI Long-Term Equity Fund Growth Option Direct
Fund analysis:
The fund has a well-diversified portfolio of 59 stocks, investing in growth stocks across market capitalization except for the energy sector, with major holdings in large-cap (69.73%) companies and the rest in mid-cap (24.14%) & small-cap (6.12%) companies.
The risk grade is average, and the return grade is above average.
The fund is rated 4-star by Morningstar and the fund has given satisfactory returns over the long term. The fund has low risk (measured by standard deviation) than the category average.
| Pros | Cons |
| Fund has outperformed the category average when the market was rising. Tax benefit. | The fund has a high expense ratio. |
What are the features of ELSS Funds?
Here are some of the features of ELSS Funds to help you become an educated investor:
1. Lock-in period
ELSS Mutual funds have a lock-in period of 3 years. You can keep your money in the fund for longer than the given period but the 3-year period is mandatory.
You cannot take the money out before this period ends.
2. Equity-based investment
One of the features of ELSS is that it is an equity-based investment. About 80% of investment is equity while 20% is invested in debt and hybrid funds.
The portfolio is well-diversified and helps you as an investor beat the odds in the long run with sufficient exposure and risk management.
3. Portfolio Manager
ELSS mutual funds are managed by fund managers who have years of experience and adequate financial knowledge to make sound financial decisions.
Your money is protected and managed by the best professionals.
4. Different ways to invest
When it comes to ELSS investments, you can either place a lump sum order or a SIP order. Some lumpsum amounts as little as Rs. 500 while some SIP investments start at Rs. 500 to Rs. 1000.
You can invest more and build a bigger corpus by the end of the 3-year period to meet your financial goals.
5. Tax benefits
You can have up on taxes with ELSS mutual funds. This investment is covered under Section 80c of the Indian Income Tax Act, 1961.
You can claim a tax refund of Rs. 1.5 Lakhs in a financial year. Thus a tool to save money and build a sizeable corpus for your financial goals.
What are the advantages of investing in ELSS Funds?
Some advantages of ELSS Funds:
1. Disciplined Investor
ELSS mutual funds have a lock-in period of 3 years which means that you will automatically become a disciplined and long-term investor.
This helps you create a list of goals and manage your funds accordingly. If you invest via SIP, then making regular investments to this ELSS mutual fund plan is a great way to start.
2. Benefits of savings
ELSS Funds gives the opportunity to create wealth and save on taxes. The ELSS funds generate a minimum of 10%* investment (This is subject to change with market risks) and is considered tax deductible.
3. Tax Benefit
As per Section 80C of the Indian Income Tax Act, 1961, you can claim a tax rebate of INR 1.5 Lakh of your ELSS Fund investment.
The gains from ELSS funds up to INR 1 lakh is not taxable by law, while above the set limit of INR 1 Lakh is taxable at 10%.
4. Lower lock-in period
ELSS Mutual Funds have a lock-in period. It is shorter than that of other investment tools like the National Pension Scheme (NPS), the Provident Pension Fund (PPF Scheme), and tax-saving Fixed Deposits.
Your money is locked in for 3 years only.
5. Tax Savings
ELSS can save taxes and claim up to Rs. 1.5 lakhs under Section 80c of the Indian Income Tax Act.
Whom the funds are suited for?
ELSS are tax-saving funds that every investor should have in their portfolio. This fund adds value to your overall investment plan, helps you stay invested without any breaks, and saves you money in taxes.
Whether you are a risk-loving or risk-averse investor, this type of investment is stable, managed by professionals, and has the dual benefit of creating wealth as well as saving your money in taxes.
Conclusion
ELSS is the only equity-linked mutual fund scheme that provides Tax Benefits to its investors under Section 80 C of the Income Tax Act for an amount up to Rs. 1.5 Lac.
And has the shortest lock-in period. There are two ways to invest in this scheme i.e., SIP (Systematic Investment Plan) or Lumpsum. The preferable mode of investing is Lumpsum as funds will be locked for 3 years.
FAQs
Is ELSS taxable after 3 years?
ELSS has a lock-in period of three years. The gains generated up to Rs 1 lakh are tax-free, and any gains above this limit attract a long-term capital gains tax at 10%
What ELSS means?
ELSS stands for Equity Linked Savings Schemes. These are Mutual fund investment schemes that help you save tax and create wealth. It has a lock-in period of 3 years.
Is ELSS better than PPF?
Both ELSS and PPF are tax-saving investments. These investments allow you to create wealth while saving your current income tax. The former has a lock-in period of 3 years while the latter has 15 years.
Are ELSS and SIP the same?
No, SIP is a medium of investment while ELSS is an investment tool. You can start a SIP for an ELSS mutual fund.
What are ELSS mutual funds?
ELSS mutual funds are equity-linked savings schemes that invest primarily in equity and equity-related instruments.
They offer tax benefits under Section 80C of the Income Tax Act, making them an attractive investment option for those looking to save taxes while generating wealth in the long run.
ELSS funds invest 80% of their corpus in equity-oriented instruments, which have the potential to generate inflation-beating returns.
What is the minimum and maximum investment amount for ELSS mutual funds?
The minimum investment amount for ELSS mutual funds varies from fund to fund and can range from Rs. 500 to Rs. 5,000.
There is no maximum limit on the investment amount, but tax benefits are available only up to Rs. 1.5 lakh per financial year. This means that you can invest more than Rs. 1.5 lakh in ELSS funds, but you will not get any additional tax benefits on the excess amount.
What is the lock-in period for ELSS mutual funds?
ELSS mutual funds have a lock-in period of three years, which is the shortest among all tax-saving investment options under Section 80C of the Income Tax Act.
This means that you cannot redeem your ELSS investment three years from the date of investment. However, after the completion of the lock-in period, you can redeem your investment or continue to hold it for the long term.
How to invest in ELSS mutual funds online?
You can invest in ELSS mutual funds online through various platforms such as the fund house website, online brokers, and mutual fund aggregators.
You need to complete the KYC process and have a bank account to invest in mutual funds online. KYC stands for “Know Your Customer,” which is a process of verifying the identity and address of an investor. You can complete the KYC process online or offline by submitting the required documents.
Disclaimer:
This is not recommendation advice, use it for educational purposes only. Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of the future performance of the schemes.
