ELSS More Than Just Tax Saving!

Equity Linked Saving Schemes (ELSS) is a type of diversified equity mutual fund which invests in diversified equity and equity-related securities. Investors mainly invest in ELSS to save taxes. However, ELSS offers many other advantages besides tax saving.

Given below are some of the choicest benefits of investing in ELSS:

Tax Benefits: The obvious benefit of ELSS is to aid tax saving. According to the Income Tax Act, a person can invest up to Rs.1.5lakh/annum in ELSS under section 80C to save tax. ELSS comes with a relatively low lock-in period of 3 years, among tax-saving instruments available under section 80C. Further, there is no upper limit of investing in ELSS.

Efficient use of funds: An ELSS has all the features of a diversified equity mutual fund. However, what differentiates it from regular diversified funds is the mandatory 3-year lock-in period. For ELSS funds, a lower proportion of the funds will need to be kept in cash. This allows the fund manager to utilize a higher proportion of funds in potential wealth generating assets.

Lock-in period aids compounding: The lock-in period instils some sense of discipline and prevents the investor from taking spur-of-the-moment decisions without looking at the bigger picture. This forcefully embeds the good habit of staying invested for a longer period. This also helps the investors benefit from the power of compounding over the long term.

Inculcates a saving habit: ELSS allows you to invest through a monthly Systematic Investment Plan (SIP). You can invest as low as Rs.500 per month. This nurtures a continuous habit of investing because there is a lock-in period of 3 years.

Attractive avenue for newly employed novice investors: If you never invested in the stock market directly or through mutual funds, ELSS could very well be your initiation into equities. This is because ELSS offers the option to invest in a diversified mix of equities and is managed by expert fund managers. At the same time, understanding nuances of tax-saving can be overwhelming when you have just begun earning.

ELSS can, thus, provide the dual benefit of easy investing in equity markets as well as saving taxes.

Disclaimer: This article represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time. Past performance may or may not be sustained in the future.
ELSS Investments are subject to a 3 year lock-in. 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.