{"id":11909,"date":"2023-02-08T23:37:01","date_gmt":"2023-02-08T18:07:01","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=11909"},"modified":"2023-02-13T16:02:03","modified_gmt":"2023-02-13T10:32:03","slug":"should-you-invest-in-elss-funds-to-save-taxes","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/","title":{"rendered":"Should You Invest in ELSS Funds To Save Taxes?"},"content":{"rendered":"\n<p>Tax saving season is here. We all want to ensure that we can minimise our taxes, at the same time, select such investment products which also optimise our returns.<\/p>\n\n\n\n<p>One such investment product is <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">Equity<\/a> Linked Savings Scheme (ELSS), also known as tax-saving <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds\/\">mutual funds<\/a>. Is this the most suitable tax-saving product for you?&nbsp;<\/p>\n\n\n\n<p>Let\u2019s break it down and analyse.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#But-first-what-is-ELSS\" title=\"But first, what is ELSS?\">But first, what is ELSS?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#What-about-the-returns\" title=\"What about the returns?\">What about the returns?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#What-are-the-risks-involved\" title=\"What are the risks involved?\">What are the risks involved?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#Who-should-choose-ELSS-funds\" title=\"Who should choose ELSS funds?\">Who should choose ELSS funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#3-less-known-facts-to-remember-before-investing\" title=\"3 less-known facts to remember before investing\">3 less-known facts to remember before investing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/should-you-invest-in-elss-funds-to-save-taxes\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"But-first-what-is-ELSS\"><\/span><strong>But first, what is ELSS?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>ELSS are <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds-based-on-market-capitalization\/\">equity mutual funds<\/a> which <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> more than 80% of their funds in stocks \u2013 across large-cap, mid-cap and small-cap.<\/p>\n\n\n\n<p>They come with a lock-in period of 3 yrs from the date of investment, one of the shortest lock-in products with tax benefits. Other investment products eligible for a tax deduction, like life insurance premiums, Public Provident Fund (PPF), and tax-saving bank deposits, come with a minimum of the 5-yr lock-in period.&nbsp;<\/p>\n\n\n\n<p>The amount invested in these mutual funds is eligible for tax deduction under Section 80C, i.e. up to Rs. 1.5 Lakh per year, i.e. ~Rs. 46,800 savings in tax.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-about-the-returns\"><\/span><strong>What about the returns?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Since <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-elss\/\">ELSS funds<\/a> <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-the-stock-market-beginners-guide\/\">invest in stocks<\/a> \u2013 the returns are not guaranteed.&nbsp;<\/p>\n\n\n\n<p>However, if we consider the historical performance, the annual average return of the category has been:<\/p>\n\n\n\n<p>Over 3 yrs: 14.75% per annum<\/p>\n\n\n\n<p>Over 5 yrs: 9.12% per annum<\/p>\n\n\n\n<p>Over 10 yrs: 13.83% per annum<\/p>\n\n\n\n<p>Comparing these to the other traditional tax-saving options, like PPF, NSC (National Savings Certificate), etc., it is evident that ELSS funds offer far superior returns.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-are-the-risks-involved\"><\/span><strong>What are the risks involved?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>However, these returns come with certain risks, which one should be aware of.&nbsp;<\/p>\n\n\n\n<p>ELSS funds do not offer guaranteed returns \u2013 the returns are closely linked to <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> performance. In the short term, their returns could also be negative. For instance, the average returns of ELSS in the last 1 yr are -0.13%. Hence, these are suitable for those with a long-term investing horizon and the risk profile to handle the ups and downs.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who-should-choose-ELSS-funds\"><\/span><strong>Who should choose ELSS funds?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Equity-linked savings schemes make for suitable investments for tax-saving for those with<\/p>\n\n\n\n<ul><li><strong>First-time equity investor<\/strong> &#8211; If you have been keen to start investing in equities but not sure yet, ELSS funds are the most appropriate investment. Why? Since these have a compulsory lock-in period, first-time investors become aware and comfortable with facing the regular ups and downs, which are a part of <a href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/\">equity investment<\/a>.<\/li><li><strong>High-risk appetite<\/strong> &#8211; If you want to diversify beyond fixed-income products and are willing to take higher risks, consider allocating a small amount towards these funds under the Rs. 1.5 lakh bracket.<\/li><li><strong>Long-term focus<\/strong> &#8211; Consider ELSS funds for long-term goals beyond 5 yrs. This would minimise risk and maximise the power of compounding. An investment of\u00a0Rs. 1,00,000 in ELSS funds could become approx. Rs. 1,45,000 in 3 yrs (13% annualised return).<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-less-known-facts-to-remember-before-investing\"><\/span><strong>3 less-known facts to remember before investing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li><strong>Taxable on maturity&nbsp;<\/strong><\/li><\/ol>\n\n\n\n<p>While the investment amount is considered for a tax deduction, once you sell the fund, if there is any profit, it will be taxed under <strong>Capital Gains tax<\/strong>. Current <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-income-tax\/\">income tax<\/a> rules state that no tax is payable up to Rs. 1 lakh of profits. More than Rs. 1 lakh of profits, flat 10% tax payable on the remaining amount.&nbsp;<\/p>\n\n\n\n<p>For example, Kavita invests Rs. 1.5 lakh in ELSS to claim the entire amount as tax deduction under 80C. After 3 yrs, she decides to sell all the units of the fund whose value has increased to Rs. 3.2 lakh.&nbsp;<\/p>\n\n\n\n<p>Her capital gains amount = Rs. 3.2 lakh \u2013 1.5 lakh i.e., Rs. 1.7 lac.&nbsp;<\/p>\n\n\n\n<p>Since the amount is more than Rs. 1 lakh, she is liable to pay tax on this profit, as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Amount of profit<\/strong><\/td><td><strong>Tax Payable<\/strong><\/td><\/tr><tr><td>Up to Rs. 1 lakh<\/td><td>0<\/td><\/tr><tr><td>Remaining Rs. 70,000 (1.7L \u2013 1L)<\/td><td>Rs. 7,000 (10% x 70,000)<\/td><\/tr><tr><td><strong>Total capital gains tax payable<\/strong><\/td><td><strong>Rs. 7,000<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<ol start=\"2\"><li><strong>&nbsp;Lock-in but no fixed maturity date<\/strong><\/li><\/ol>\n\n\n\n<p>Don\u2019t confuse lock-in with maturity. ELSS funds cannot be redeemed (sold) during the 3-yr lock-in period. However, after 3 yrs, one can continue to hold these investments. They don\u2019t have a fixed maturity date and shall not automatically be credited into your account like fixed deposits or insurance policies. After 3 yrs, one can consider them as any other mutual fund investment that can be redeemed fully or partially, per requirement. We recommend holding on to these funds over a long-term horizon.<\/p>\n\n\n\n<ol start=\"3\"><li><strong>Each <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-sip\/\">SIP<\/a> counts<\/strong><\/li><\/ol>\n\n\n\n<p>It is recommended to invest in equity funds through the SIP (Systematic Investment Plan) route. However, while investing in ELSS funds, please remember that the lock-in period of 3 yrs is counted from each SIP investment date; not from the date of the first SIP investment.&nbsp;<\/p>\n\n\n\n<p>Example: If Ratna starts a SIP in XYZ ELSS fund of Rs. 10,000 per month from 1st January 2023 \u2013 her lock-in for each SIP will end as per the below schedule:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Date of Investment<\/strong><\/td><td><strong>End of lock-in period<\/strong><\/td><\/tr><tr><td>1 January 2023<\/td><td>2 January 2026<\/td><\/tr><tr><td>1 February 2023<\/td><td>2 February 2026<\/td><\/tr><tr><td>1 March 2023<\/td><td>2 March 2026<\/td><\/tr><tr><td>1 April 2023<\/td><td>2 April 2026<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>So, while she can withdraw all units invested in January 2023 on January 2026 \u2013 but she will need to wait till April 2026, if she wants to redeem all the units invested till April 2023.<\/p>\n\n\n\n<p>These lock-in dates must be kept in mind while planning for goals through ELSS.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Investing for saving taxes should not be seen in isolation. When one selects investment options which fit into their overall financial plan while helping in tax optimisation, that\u2019s a win-win investment strategy.&nbsp;<\/p>\n\n\n\n<p>You can use <a href=\"https:\/\/www.tickertape.in\/screener\/mutual-fund?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign=nehasingh\" target=\"_blank\" data-type=\"URL\" data-id=\"https:\/\/www.tickertape.in\/screener\/mutual-fund?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign=nehasingh\" rel=\"noreferrer noopener\">Tickertape Mutual Fund Screener<\/a> to get the list of ELSS funds in India. Launch the <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-use-tickertape-mutual-fund-screener\/\">Mutual Fund Screener<\/a>, search for ELSS under \u2018category\u2019 and use 50+ <a href=\"https:\/\/www.tickertape.in\/blog\/14-new-filters-on-tickertape-stock-screener\/\">filters<\/a> like AUM, NAV, <a href=\"https:\/\/www.tickertape.in\/blog\/information-on-expense-ratio\/\">expense ratio<\/a>, etc., to sort them and find the best one.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Tax saving season is here. Check our expert discuss if you should invest in ELSS funds to save taxes and what are its risks and returns.  <\/p>\n","protected":false},"author":126,"featured_media":11913,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1770],"tags":[],"acf":[],"modified_by":"Anjali Chourasiya","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2023\/02\/7-Feb-2023-Should-You-Invest-in-ELSS-Funds-To-Save-Taxes_-23-23.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/11909"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/126"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=11909"}],"version-history":[{"count":2,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/11909\/revisions"}],"predecessor-version":[{"id":11948,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/11909\/revisions\/11948"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/11913"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=11909"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=11909"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=11909"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}