ELSS: An Equity Scheme with A Tax Benefit

In 2022, if you are confused about where to invest your money so that you can get a tax benefit, you can consider investing in the Equity linked Savings Scheme. Also referred to as ELSS, Equity Linked Savings Scheme is the only type of equity scheme to offer a tax benefit. ELSS comes with a short lock-in period. Investors may be able to create some wealth and save tax every fiscal year by investing up to Rs. 1.5 Lac in ELSS funds.

Equity Linked Savings Scheme

ELSS is the only mutual fund scheme that comes with the dual benefit of wealth creation and tax benefit. As per SEBI regulations, all ELSS funds must invest a minimum of 80 percent of their investible corpus in equity and equity-related instruments of publicly listed companies. This is an equity oriented scheme predominantly investing in stocks. The fund manager may invest the remaining of the corpus in fixed income instruments.

Here’s an example of how the ELSS fund helps investors reduce their tax liability –

Seema, a celebrity manager is earning Rs. 15 Lacs per annum. This lands her in the highest tax slab. She learns about the dual benefit of ELSS and decides to invest 1.5 Lacs in the tax saver. As per Section 80C of the Indian Income Tax Act, 1961 you can invest up to Rs. 1.5 Lac every fiscal in ELSS to claim tax benefit. So, by investing this sum in an ELSS scheme, Seema managed to bring down her gross taxable income to Rs. 13.5 Lac (15-1.5). Also, since ELSS comes with a statutory lock-in of three years, the investments might be able to accrue some interest till then.

Few things to keep in mind before investing in ELSS

The ELSS fund has a predefined lock-in period of three years. You cannot withdraw the invested sum under any circumstance once you invest, for a minimum duration of 36 months. For SIP investors, every single SIP investment they make every month is a new investment in itself. There is no option of partial withdrawal for SIP unlike other tax saving instruments under Section 80C.

ELSS comes with a tax benefit. You can claim a tax rebate on investments of up to Rs. 1.5 Lac. But that does not mean that you should only invest Rs. 1.5 Lac in ELSS. This is an equity scheme with the investment objective of long term wealth creation. Investors can invest a sum higher than Rs. 1.5 Lac in ELSS if their risk appetite permits. ELSS can be considered as a wealth creation tool and not just a tax saving instrument. Also, the lock-in period refrains investors from having the thought of redeeming their investments midway to their ultimate financial goal.

Investors can also invest in ELSS through the SIP route. Systematic Investment Plan (SIP) is an easy and hassle-free way to invest in the tax saving scheme. An individual can decide on the SIP sum that is ideal for them and then continue to invest this every month in the ELSS fund. Investors can also opt for the auto transactions where the investment sum is debited from their account on a fixed date of every month and transferred to their mutual fund account, where they can buy ELSS units depending on the scheme’s existing NAV (Net Asset Value). You can easily set up and manage auto transactions through the ELSS app for a seamless investment experience.

Axis Long Term Equity Fund
(An open ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit)

Investment objective

To generate income and long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities. However, there can be no assurance that the investment objective of the Scheme will be achieved.

Benefits

• Axis Long Term Equity Fund is a diversified equity linked saving scheme (ELSS) that invests in a mix of large caps and select midcaps
• The fund has a 3-year lock-in which is the lowest among other tax saving instruments
• A 3-year lock-in ensures that the money stays invested in equities and does not get perturbed by market ups and downs
• Being an ELSS scheme, the scheme comes with dual advantage of building wealth and saving tax
• Investors can target long term goals such as children’s education and their future, retirement or any other long term financial plan
• Axis Long Term Equity Fund has a 3-year lock-in which is one of the lowest amongst other tax saving instruments

Axis Long Term Equity Fund
(An open ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit)

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

*ELSS Investments are subject to a 3-year lock-in period and are eligible for tax benefit under section 80C of the Income Tax Act, 1961.

#As per the present tax laws, eligible investors (individual/HUF) are entitled to deduction from their gross income of the amount invested in Equity Linked Saving Scheme (ELSS) up to Rs.1.5 lakhs (along with other prescribed investments) under section 80C of the Income Tax Act, 1961. Tax savings of Rs. 46,800 mentioned above is calculated for the highest income tax slab.

Finance Act, 2020 has announced a new tax regime giving taxpayers an option to pay taxes at a concessional rate (new slab rates) from FY 2020-21 onwards. Any individual/ HUF opting to be taxed under the new tax regime from FY 2020-21 onwards will have to give up certain exemptions and deductions. Since, individuals/ HUF opting for the new tax regime are not eligible for Chapter VI-A deductions, the investment in ELSS Funds cannot be claimed as deduction from the total income.

Investors are advised to consult his/her own Tax Consultant with respect to the specific amount of tax and other implications arising out of his/her participation in ELSS'

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.