Looking for tax savers? ELSS can be a boon for you

We have passed the last leg of the financial year 2015-16. As the taxpayers, we tend to look for avenues to save tax by the end of the year, i.e., from January to March. In the rush to save tax, and submit tax declarations the clients tend to select options without much consideration about the authenticity of the scheme as well as the company. The top wealth managers publicize to commence investing in diversified equity funds which also extend the benefit of saving taxes from the beginning of the year itself and not wait for the last moment to plan for your tax. Equity Linked Saving Scheme (ELSS) can prove to be a better option as it is categorized under the Section 80C of the Income Tax Act which allows an investment of up to Rs 1.50 Lac, eligible to get deducted from your taxable income.

The ELSS mutual fund has a three-year lock-in period from the date of commencing the investment. This means that the client is unable to withdraw the invested money from the scheme before the completion of the period of three years which is considered from the date of beginning of the policy. For example, if you begin the investing in ELSS fund in the month of January 2016, then the clients have to wait until January 2019 to withdraw the amount. However, the client is free to redeem the units once the lock-in period gets over. Many mutual fund experts believe ELSS to be a sound option for those who are seeking tax benefits along with higher returns on their invested amount. An investor is free to invest up to Rs 1,50,000 in this scheme and has an opportunity to save up to Rs 46,350 per year if he/she falls under the higher tax slab.

The client is free to invest an amount in any one of the ELSS schemes to multiply their money along with availing the tax benefit. ELSS scheme invests the pooled money of the clients in the shares of different listed companies, so they are prone to the volatility prevailing in the stock market. Market fluctuations also affect the returns of ELSS fund. The tax exemption rendered by the other tax saving instruments and ELSS is the same, but the most prominent difference between them is that while ELSS invests into the stock market, other tax savers are just equivalent to saving into banks and provide a mere rate of interest. As ELSS fund invests in diversified equity, it is able to produce higher returns over a prolonged period as compared to the rate of interest provided by other tax savers (like PPF, NSC).

ELSS v/s NSC

NSC (National Saving Certificate), is a tax saving scheme facilitated by Indian Government through post offices across the country. It was launched in the year 1961 and provides a return of 8.50% over a span of 5-10 years, which is far less than what an ELSS scheme provides within the span of three years period. On one hand, where NSC is a fixed income fund, on the other, ELSS fund is an equity based tax saver fund which is capable of yielding the best returns on the invested sum with an additional benefit of tax saving. Other than the returns there are various options which prove that ELSS is far more lucrative than NSC. For example, the lock-in period in NSC is at least five years which is only three years in any of the ELSS scheme. Thus, the clients can earn higher returns by investing in ELSS rather than simply saving in NSC.

Some top performing ELSS funds

There are a lot of tax saving mutual funds operating in the market since a long time. But, the following are some of the best schemes which are operating in full swing in the market.

Axis Long Term Equity Fund

This scheme, sponsored by Axis mutual fund, follows a directive to invest across various equity shares of the companies and uses a bottom-up approach to choosing the stocks for investing. Axis Long Term Equity fund follows a strategy which is based on buy and hold. The statement holds its significance as the portfolio holds more than 50 percent of the stocks for 36 months between the period of Feb 2013-Jan 2016.

Birla Tax Relief 96

It is a fund that falls under tax saving category of mutual funds. The scheme was launched in the year 1996 with a view to providing taxation benefits to its clients. It is an open-ended ELSS fund which was launched with an objective of long-term growth of capital along with providing tax benefits through a portfolio consisting of 80% equity and 20% money market instruments.

SBI Magnum Taxgain Scheme

The scheme has over 12 Lac investors according to the figures based on live portfolio counts of Feb 2014. The scheme targets to provide twin benefits, i.e., capital appreciation and tax saving within one investment plan. SBI Magnum Taxgain Scheme facilitates investments up to Rs. 1 Lac under the Section 80C of the Income Tax Act.

Thus, invest wisely and timely by giving your wealth a proper path to multiply and avail the tax saving benefit at the same time.