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Equity Linked Saving
Schemes in India
Mutual fund industry is emerged in 1964 in
India and developed enormously. Mutual funds
could give returns with low risk than the market
risk and the volatility of the mutual fund market
is less than the stock market.
A type of professionally managed collective
investment scheme that pools money from
many investors to purchase securities.
It is a trust that pools the savings of a
number of investors who share a common
Meaning of ELSS:
ELSS is a dedicated mutual fund scheme that allows
investors to save tax. An ELSS fund manager invests in a
diversified portfolio, predominantly consisting of equity
and equity related instruments that carry high-risk and
have potential to deliver the high-returns.
Why should one invest in an
ELSS? Equity Returns
Lock-in period of 3 years
ELSS mutual funds helps to
Five important facts about ELSS
1.How much is the risk?
In fact, the risk is higher in ELSS funds
because you cannot exit before three
2. What is the taxability?
ELSS funds fall under the exempt-exempt-
exempt (EEE) category.
Investments get tax deduction
under Section 80C.
Tax Advantage of ELSS
Without ELSS/ 80C
With ELSS/ 80C
Gross Total Income Rs.7,50,000 Rs.7,50,000
Total Income Rs.7,50,000 Rs.6,00,000
Tax on Total Income Rs.80,000 Rs.55,000
Tax Saved on
3.What is the lock in period?
Instrument Lock-in Period
ELSS 3 Years from the date of allotment of the
Bank Fixed Deposit 5 Years
PO Time Deposit 5 Years
NSC 6 years
PPF 15 Years (Partial withdrawal after 6 years)
4.Growth or liquidity?
The growth plan is the cumulative option
under which your investment will keep
growing till you redeem it. In the dividend
plan, the fund gives some amount back to if
the fund's NAV has risen
5.What is the threshold?
Most equity funds have a minimum investment
limit of R.s 5,000, but ELSS funds have a lower
threshold of R.s 500
India – Why Invest in Equities
9% GDP growth makes India among the fastest growing
economies in the world.
Indian companies today are very competitive – have
growing cost-effectiveness, a confident management,
global outlook & plans, etc.
As profits grow (between 15%-20%) the market would
also grow at such a rate over long term since the prices
always trail the profits.
The market valuations are now fair and stocks are not
overvalued. For a long-term investor, the opportunity to
create wealth over time is great.
Comparison between ELSS and other
Parameter PPF NSC ELSS
Tenure 15 years 6 years 3 years
8.60 to 8.90 %
Not assured dividends/
Minimum investments Rs.500 Rs.100 Rs.500
Maximum investments Rs.100,000 No limit* No limit*
Amount eligible for
Rs.100,000 R.s 1,00,000 R.s 1,00,000
Taxation for interest Tax free Taxable Dividends and capital gain
Safety/ Rating Highest Highest High Risk
• Axis Long Term Equity Fund
• Birla Sun Life Tax Plan
• Birla Sun Life Tax Relief 96
• BNP Paribas Tax Advantage Plan
• Canara Robeco Equity Tax Saver
• DSP Blackrock Tax Saver Fund
• Franklin Tax shield Fund
• HDFC Long Term Advantage Fund
• HDFC Tax Saver Fund
• HSBC Tax Saver Equity Fund
How to choose best ELSS
mutual funds to invest ?
Consider Crisil Rank-1, Rank-2 and Rank-3 ELSS mutual
Consider top rated funds by Value research online.
You can choose 5 star, 4 star and 3 star rated funds to
Consider funds where the Assets Under Management
(AUM) is more than R.s 100 Crores. This would indicate
that such schemes have gained confidence from
investors and they are investing more and more in
Performance in last 3 to 5 years’ time frame.
Demerits of ELSS
Risk is higher in ELSS
funds, because we
cannot exit before
Purely from a tax management perspective, ELSS
investment stands out as a preferred destination.
For others who want liquidity as well as growth and
the freedom to shift through funds, then there are
other avenues available as well. But from a tax
saving perspective, this is a ‘must-have’.