Is ELSS The Ideal Way to Save Tax This Fiscal Year?

One of the reasons why people opt to undertake investments in mutual fund is to aim to generate wealth that might probably be helpful for post-retirement expenditures. However, just selecting a mutual fund scheme is not enough. Mutual funds come in a myriad of variants. Each of these different variants comes with its own benefits.

Besides benefits, each of these variants also tags along its unique risks. When investing in mutual fund schemes, you would do well to remember that the higher the degree of risks, the higher the chance of accumulating long-term wealth.

One of the different types of mutual funds is equity-linked mutual funds or ELSS (Equity Linked Savings Scheme).

Understanding these schemes:
Like other mutual fund schemes, experienced finance professionals also manage equity-linked savings schemes. The said professionals are referred to as fund managers.

It is possible to sign up for this variant of mutual fund scheme by approaching any fund house, i.e., asset management company or AMCs spread across India. Amongst the primary reasons people sign up for ELSS funds is that they are a class of mutual fund schemes known for being qualified for tax deductions.

By signing up for this type of equity mutual fund, you might enjoy tax deductions of approximately ?1,50,000. Furthermore, with the help of this tax-saving feature, you might save nearly ?46,800 annually. Tax deductions in these mutual fund schemes can be enjoyed due to the provisions listed under Section 80C of the Income Tax Act, 1961.

Occasionally, the fund might invest more than a designated amount. However, it is vital to note that an excess of over ?1,50,000 will not qualify for any tax advantages.

The wealth generated from ELSS funds is taxable with long-term capital gains tax (LTCG) and dividend distribution tax (DDT). Regarding LTCG, you might remember that the taxes on long-term capital gains (LTCG) were restored in the Union Budget presented for the financial year 2018-19.

Despite this vast change, ELSS funds have continued to grow as one of the preferred schemes among all the Section 80C investment options. All you need to remember about signing up for this scheme is to opt for the correct type of ELSS funds. This variant of equity mutual fund schemes could be broadly classified into two:

1. Dividend pay-outs:
With this option's help, one might enjoy dividends from time to time. Furthermore, these dividends might also be completely tax-free. Declarations about dividends are made when excessive profits are generated.

2. Growth funds:
Usually, they are known for being long-term investment schemes. In growth funds, the entire value of the fund is realised only at the time of redemption.

Are there any benefits that are associated with ELSS funds?
Here are some of the different advantages that are associated with equity-linked savings schemes:

- These funds come with tax advantages:
Tax benefits are one of the reasons why many investors, both fresh and experienced, are known to opt for ELSS funds. Through these schemes, you may get a chance to enjoy a tax deduction of approximately ?1,50,000 annually.

It is possible to enjoy the said facility thanks to Section 80C of the Indian Income Tax Act, 1961. If it is a tax-efficient scheme you seek, equity-linked saving schemes might be an ideal investment option for you.

For individual nature of tax implications, investors are requested to consult their tax advisors before investing

- These schemes might possibly have the shortest lock-in period amongst all 80C investments:
One of the things that you need to remember about signing up for ELSS is that they have a lock-in period of three years. It means you might not be able to redeem your investment before the end of the lock-in period.

However, after the lock-in period ends, you could choose to keep your funds invested instead of redeeming the investment. If you were to do that, the decision might result in long-term wealth acquisition.

- It is possible to sign up for SIPs for ELSS funds:
When investing in mutual funds, people have a misconception that they can make only a one-time lump-sum payment. This is erroneous because you could opt for a less stressful option known as a Systematic Investment Plan a.k.a. SIP.

Hypothetically consider that you don't have access to the required investment amount. The other fund allocation option that you could choose to opt for is systematic investment plans or SIPs. Signing up for SIPs could help you pay for the ELSS investment on a specified monthly date and in lower sums.

Past performance may or may not be sustained in future.

- They are exposed to equities:
These funds are known for primarily directing investments towards equities, being equity-linked savings schemes. Signing up for these schemes is smart because the fund manager chooses to expose your funds to the equity market while investing. Opting to sign up for ELSS is regarded by many to be the first step in building equity as an asset class in your portfolio.

Are these schemes the ideal way to save on taxes this fiscal year?
Considering the fact that these schemes are known to come with tax advantages, signing up for ELSS funds might be a prudent choice. However, there are other advantages of these schemes, and it is imperative that you are aware of them.

If you're not familiar with these benefits, don't worry—we've got you covered! Download Axis MF's ELSS App.

Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

Taxation :For individual nature of tax implications, investors are requested to consult their tax advisors before investing

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