The ELSS Mutual Funds are defined as tax-savings funds since they offer tax exemption of up to Rs. 1,50,000 under section 80C of the income tax act. The ELSS Funds is equity-oriented which predominately invests their assets in equity or equity related instruments. An Individual who wants to avail tax exemption benefits can invests in this category. Furthermore, they are linked to equity which provide capital appreciation benefit as they are mandated to invests 80 percent of its assets in equity market. There is a minimum lock-in period of three years in this option wherein the LTCG (10%) tax treatment is considered.
Features of ELSS Mutual Funds
• An ELSS fund can invests across market caps in diversified manner thereby providing growth opportunities to the investors.
• Tax Exemption of Rs. 1.5 Lakhs can help them in reduction of taxable income under section 80C.
• The LTCG gains of up to Rs. 1,00,000 are not taxable in one financial year.
• One can start investing in ELSS through lump-sum purchase and SIP method.
• It is a preferred option for investors who want to take advantage of equity markets along with tax savings.
• It helps in building the savings habit with lock-in period.
To conclude, the ELSS Funds compared with National Savings Scheme and Public Provident Fund is the best option considering the low lock-in period, high returns and tax savings ability. However, one needs to consider the inherent market risk factors and choose the fund that provide stability in returns whilst maintain low volatility.