ELSS Funds-Tax Saving Mutual Fund Investment|SBI MF (2024)

FAQs

What is the difference between tax saving MF and ELSS? ›

ELSS funds are tax-saving equity mutual funds that help in saving tax and investing to earn good returns in the long run. Mutual funds are financial instruments that can help meet both the short-term and long-term goals of an investor. ELSS funds are primarily equity funds.

Under section 80C, one can avail of tax benefits of up to ₹46,800 by investing up to ₹1.5 lakhs per year in ELSS. You can also invest more than ₹1.5 lakhs in ELSS, but tax benefits can not be availed on an investment exceeding ₹1.5 lacs.

ELSS funds qualify for tax exemptions under Section 80C of the Income Tax Act. Deductions of up to Rs. 1.5 lakh can be availed on the amount invested on ELSS funds. Supporting documents have to be provided by the policyholder to claim deductions.

After the three-year lock-in period, investors can redeem their investment or stay invested. But the investor must note that the investment after the deductions is still subjected to 10% tax, though ELSS can give high returns in the long term.

Quant ELSS Tax Saver delivered an annualised return of 25.51 percent in the past 10 years, Bank of India ELSS Tax Saver Fund gave 19.19 percent return, JM ELSS Tax Saver Fund gave 18.42 percent return.

While ELSS investments can be redeemed at any time after the three-year lock-in period, investors should consider market conditions and their financial goals before making a withdrawal. Timing the redemption strategically can help maximise returns.

ELSS funds are a good option for investors with a long-term investment horizon looking to seek exposure to the stock markets and save taxes. There are various ELSS funds available. Research your options and ensure that you choose a fund that syncs with your financial plan while helping you reduce your tax liability.

Important Documents required as Investment Proofs

ELSS Mutual Fund: Copy of the investment certificate. Public Provident Fund: Stamped deposit receipt or passbook mentioning the PPF account. Life Insurance Policy: Premiums paid towards life insurance.

Which is better, PPF or ELSS? ›

ELSS has higher returns potential, but also higher risk and volatility, while PPF has lower returns, but also lower risk and stability. ELSS is taxed at 10% on long-term capital gains exceeding Rs. 1 lakh per year, while PPF is tax-free at all stages.

Tax-saving mutual funds collect money from multiple investors and predominantly invest it in the equity market. Tax saving mutual funds like ELSS have a lock-in period of three years, until which you cannot withdraw your investments.

You want short-term gains

Chasing quick returns through ELSS funds might not always work, and hence, you should not invest in ELSS funds if you want returns quickly. ELSS funds may be suitable for you only if you have a longer investment horizon.

In a five year and 10-year horizon, the ELSS category offered an average return of 18.50% and 17.05% respectively. “ELSS funds have the capacity to yield returns surpassing those of simple savings schemes. Data shows that the ELSS category has delivered 15-16% returns on average over the last 10 years.

It is often seen that most investors apply for ELSS funds in the January to March period, which is popularly labeled as the tax-saving season.

Benefits of tax-saving mutual funds

Investments in tax-saving mutual funds like ELSS qualify for tax deduction up to 1.5 lakh per annum under Section 80C of the Income Tax Act. These funds carry one of the shortest lock-in period among all 80C investments.

Difference between ELSS and PPF

ELSS is taxed at 10% on long-term capital gains exceeding Rs. 1 lakh per year, while PPF is tax-free at all stages.

ELSS is suitable for individuals looking for tax benefits and willing to accept market-related risks for potentially higher returns. FDs, on the other hand, are ideal for risk-averse investors who prioritize safety, fixed returns, and liquidity.

An ELSS fund is an effective financial instrument to save tax and earn decent returns. However, you need to be aware that you are not investing in it with the wrong expectations.