Here are the top 10 ELSS schemes to save tax
ELSS is an ideal way to save tax as well as create wealth.
If you are an employee, you must have received a mail from your HR regarding submitting investment proofs for the year. And if you are someone who is yet to do your investments, then this article will come handy to you.
Of the many tax-saving instruments ELSS is an ideal way to save tax as well as create wealth.
What are ELSS Funds?
Equity Linked Saving Schemes (ELSS), popularly known as tax saving mutual funds, are equity-oriented mutual funds. As per the SEBI regulations, ELSS funds have to invest at least 80% of their corpus in equity or equity-related instruments.
These funds come with a lock-in period of 3 years and qualify for a tax deduction of up to Rs 1.5 lakh per financial year under Section 80C.
Advantages of ELSS Mutual Funds
The lock-in period of three years is the shortest of all investment options under section 80C.
ELSS mutual funds have the potential to offer much higher returns than other tax saving instruments such as PPF or NPS.
Rs. 1 lakh a year from ELSS mutual funds are exempt from income tax and long-term capital gains above Rs. 1 lakh is taxed at 10%.
Investors need not have in-depth knowledge of the markets. As the scheme is managed by experienced professional fund managers.
“For long-term investors Equity linked saving schemes (ELSS) continue to be the most preferred tax saving option. For many new investors, ELSS funds make an excellent entry product, where they get their first taste of equity mutual funds along with immediate tax savings. Once they get used to long-term equity returns, they can graduate to try other types of equity funds as well,” said Harish Bihani, Equity Fund Manager at ICICI Prudential AMC.
Now that you have understood why ELSS is the best tax-saving instruments. Lets now have look at which are the top performing ELSS mutual fund schemes.
The above schemes are top 10 performing ELSS schemes based on their 7 years compounded annual growth rate (CAGR) and AUM size of over Rs. 1,000 crores as on December 2020. The reason we are considering CAGR since equity investments enjoy the benefit of compounding.
At this point, you don’t have any other option but to do a lump sum investments and save tax. It would be wise to start a SIP in April 2021 and save tax at the same time enjoy the benefit of cost averaging by investing lower at higher price & vice versa.
(Disclaimer: The above list is for informational purpose. Before investing please consult your financial adviser.)