Introduction
On the journey towards financial growth, the spotlight is on ELSS Mutual Fund. These funds, known as the Equity Linked Savings Scheme offer many benefits to Indian investors. They aren’t just any investment plan; they serve as a secret weapon for saving on taxes and witnessing money growth. ELSS guides investments into the stock market, where the growth potential resembles a rocket. Yes, there’s a 3-year lock-in period, but envision it as planting a seed and allowing it to transform into a mighty tree. After all, good things are received by those who patiently wait. Now, let’s delve into the features of ELSS – from the lock-in period to tax savings, market-linked returns, and a diversified portfolio.
This article will explore the necessary details regarding this category. The important factors that should be kept in mind while investing in the ELSS funds. It will give a comprehensive guide about the investing benefits of this category. Now let us start with learning the meaning of ELSS.
What is an ELSS Mutual Fund?
The Equity Linked Savings Scheme (ELSS), is a specialized investment plan in India. It is introduced to ease tax savings while also growing one’s money, achieving two aims with one approach. The ELSS category guides investments into the stock market, which has the potential for faster growth than alternative options.
Although it has a 3-year lock-in period. It serves the useful aim of encouraging a long-term perspective, in line with the proverb that good things come to those who wait.
Key features of Equity Linked Savings Scheme MF
Some of the features of ELSS funds schemes include are as follows:
Lock-in period
Equity Linked Saving Scheme (ELSS) funds come with a minimum lock-in period of 3 years, which means that the investment cannot be redeemed or withdrawn before completion of the lock-in period. However, after the lock-in period, the investors can redeem the investment amount and the returns generated on it.
Equity exposure
ELSS funds invest at least 80% of the investment in equities, which means that the performance of the fund depends on the performance of the underlying equities in the portfolio. ELSS funds typically invest in large-cap, mid-cap, and small-cap equities, thereby providing diversified exposure to the investors.
Tax saving
Investments in ELSS funds are eligible for tax deduction under section 80C of the Income Tax Act, up to RS 1.5 lakh. This means that the investors can save taxes by investing in ELSS funds and claim the tax benefit while filing their Income Tax Returns.
Market-linked returns
ELSS funds offer market-linked returns, which means that the returns generated by the fund depend on the performance of the equities in the portfolio. As ELSS funds invest in equities, the returns generated by the fund are subject to market risks. However, as the lock-in period is for 3 years, the investors can benefit from the power of compounding.
Diversified Portfolio
ELSS funds typically invest in diverse equities from various sectors, reducing concentration risks. This means that even if a particular sector or stock underperforms, the overall impact on the portfolio is limited. Diversification also helps in reducing the volatility of the portfolio and provides a cushion against market risks.
Top 5 Best Performing ELSS Fund Schemes
To help investors in choosing the right fund, we have drawn a list filtered on various grounds. Below are the best-performing fund schemes to invest in 2024:
Quant ELSS Tax Saver Fund
Investment objective
This scheme seeks to achieve capital appreciation by investing primarily in equity shares with growth potential. The Secondary Goal is to provide dividends and other income.
Fund house name: Quant Mutual Fund
Category: Equity: ELSS
CAGR: 16.11%
Benchmark: Nifty 500 TRI
ICICI Prudential ELSS Saver Fund
Investment objective
This scheme follows long-term capital appreciation by investing about 90% of its investments in equities instruments, with the other 10% parked in debt, money market securities, and cash.
Fund house name: ICICI Prudential Mutual Fund
Category: Equity: ELSS
CAGR: 19.44%
Benchmark: Nifty 500 TRI
DSP ELSS Tax Saver Fund
Investment objective
This scheme tries to create medium to long-term capital appreciation from a diversified portfolio that is primarily comprised of equities and equity-related corporate securities, as well as to allow investors to deduct total income as permitted by the income tax statute.
Fund house name: DSP Mutual Fund
Category: Equity: ELSS
CAGR: 15.26%
Benchmark: Nifty 500 TRI
Bandhan ELSS Tax Saver Fund
Investment objective
This scheme aims to develop a diverse portfolio of equities from firms with excellent fundamentals that are available at affordable values. The scheme can be entirely invested in equities (and equity-related securities) and up to 20% in debt and money market instruments.
Fund house name: Bandhan Mutual Fund
Category: Equity: ELSS
CAGR: 18.81%
Benchmark: Nifty 500 TRI
Parag Parikh ELSS Tax Saver Fund
Investment objective
This Scheme’s goal is to achieve long-term capital appreciation through a diverse portfolio of equities and equity-related instruments.
Fund house name: PPFAS Mutual Fund
Category: Equity: ELSS
CAGR: 23.57%
Benchmark: Nifty 500 TRI
Who should invest in this category?
This category is suitable for the following investors:
Salaried Individuals Seeking Tax-Saving
ELSS funds provide tax benefits under Section 80C of the Income Tax Act, making them an appealing choice for salaried persons wishing to save money while investing for the long term.
Long-Term Investors with a Higher Risk Tolerance
ELSS investments require a three-year lock-in period, making them suitable for long-term investors with higher risk tolerance. Investors with a longer time horizon and a higher risk tolerance may find ELSS appealing because it lets them ride out market volatility while potentially benefiting from stock market growth.
First-Time Investors Wanting Exposure to Equities
ELSS funds are a great option alongside mutual funds. The lock-in period encourages long-term investing and provides a learning opportunity for people new to the market.
Conclusion
In conclusion, ELSS Mutual Fund emerges as an effective financial tool for Indian investors, providing a unique combination of tax savings and potential wealth creation. The Equity Linked Savings Scheme directs investments into the volatile stock market, encouraging a long-term view with its three-year lock-in period. ELSS appeals to a wide spectrum of investors because of its lock-in duration, equity exposure, tax benefits, market-linked returns, and diversified portfolio. Salaried individuals looking to save money on taxes, long-term investors with a higher risk tolerance, and first-time investors looking for equity exposure can all benefit from ELSS. With the potential for market-linked returns and purposeful diversification, ELSS is an appealing option for investors seeking financial success.
Furthermore, investors may benefit by investing in a Systematic Investment Plan in this ELSS category. It will provide them with an advantage of the compounding return.
