Disclaimer:
In Unit Linked Policies, the investment Risk in the investment portfolio is borne by the policyholder.
Written by
Abhishek Chakravarti
BFSI Writer
Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Axis Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.
Reviewed by
Sahil Rawal
BFSI Expert
Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.
An ELSS fund is an equity-oriented mutual fund with a mandatory lock-in period of 3 years. In recent years, taxpayers have favoured ELSS plans to avail tax benefits from equity investments. If you invest in an ELSS investment plan, you can avail of a tax deduction of up to Rs. 1.5 lakh in a financial year on the invested amount. Apart from the ELSS tax benefit on the invested amount, the gains from these schemes at the end of your three-year tenure will be considered as Long Term Capital Gain(LTCG) and will be taxed at 10% (if total gains during the financial year is above Rs. 1 lakh).
ELSS tax saving investments can be made in the same way you invest in any other mutual fund. You can invest in ELSS as a lump sum or via the SIP (Systematic Investment Plan) route.
SIP ensures financial discipline and decreases the risk to the investment through rupee cost averaging. Starting with investments as low as Rs 500 per month in an ELSS fund, investors can claim tax benefits of up to Rs 1.5 lakh in a financial year.
Some key features of ELSS Funds are:
Any individual who investments in an ELSS tax saving mutual fund can avail tax deduction of Rs 1.5 lakh in a financial year under Section 80C of the Income Tax Act 1961. Compared to other tax saving investment plans under section 80C like NSC or Public Provident Funds, ELSS offers the shortest lock-in period of 3 years.
Further, the returns that one gets by redeeming ELSS units are considered as long-term capital gain (LTCG), which is taxed at 10%, if total LTCG from equity investments in a financial year exceeds Rs. 1 lakh. So even individuals who comes under the maximum 30% income tax slab rate only have to pay up to 10% tax on the returns from an ELSS investment plan.
Any individual looking for tax deduction benefits and wants some good return while doing so can opt for ELSS investment plans. Some key features to consider when making ELSS tax saving investments are:
Although investors can avail of ELSS tax benefit of only up to Rs. 1.5 lakh yearly under section 80c, they can invest more. What’s more investors can also choose to stay invested and earn returns after the lock-in period of 3 years for as long as they want.
Before investing in the ELSS tax saving funds, you need to consider the following road maps.
The decision to invest shouldn't be based on just the ELSS tax benefits and investing in ELSS should not be looked at from a short-term perspective. Although ELSS investments have a minimum lock-in of three years, linking the investments to longer-term goals is beneficial.
Investors must keep their investment horizons longer than 5 years and be patient to get favourable outcome from ELSS tax saving investments. It is crucial to distribute investments equally throughout the year via SIPs rather than investing all at once to avoid the impact of short-term market swings.
If an investor is investing a lump sum amount at one go, they will get the investment and gains in return after three years, but if an investment is made in SIP format, then the monthly SIP instalments get locked in for three years individually.
Any type of investment involves some degree of risk. Whenever an investor intends to purchase securities - such as stocks, bonds, or mutual funds - it is necessary to understand the risks involved before making the investment. Investors are at times rewarded with great investment returns for taking risks. If an investor has a financial goal with a long-time horizon, they are likely to make more money in return by making investments is equity-oriented instruments like ELSS mutual funds.
An investor can protect himself against significant losses by including multiple asset categories in their investment portfolio.
Inclusion of multiple asset classes ensure that with overall portfolio returns are minimally impacted by market conditions. This helps the investor reduce the risk of losing a huge amount of money when equity markets undergo a correction.
ARN: May22/Bg/23
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