Equity Linked Saving Scheme: Top 5 ELSS mutual funds that will give better returns, income tax exemption too

Equity-Linked Savings Scheme or ELSS is a type of open-ended equity mutual fund. ELSS mutual funds invest in equity and equity-related securities of companies.

ELSS mutual funds are a smart way to save a significant amount of money that would otherwise go towards taxes, say tax and investment experts. Photo: Reuters

Equity-Linked Savings Scheme or ELSS is a type of open-ended equity mutual fund. ELSS mutual funds invest in equity and equity-related securities of companies. What makes an investment in ELSS mutual funds the most attractive is that they are eligible for tax benefits. One can save up to one and a half lakh rupee per annum by investing in these funds. These mutual funds come with a lock-in period of three years, which means that until that time is over, investors cannot redeem their fund units. Even then, this is the shortest lock-in period for any tax saving scheme. You can invest in ELSS via lump sum or SIP mode.

Speaking on the Equity Linked Saving Schemes in mutual fund investments Jitendra Solanki, a SEBI registered tax and investment expert said, "ELSS mutual funds are a smart way to save a significant amount of money that would otherwise go towards taxes. However, ELSS funds being purely equity funds, are dependent on market timings and hence market risks. The risks, therefore, are more than that of PPF and FD, however, potential returns are higher as well." Solanki went on to add that dor most investors, ELSS investments are a tool to save taxes. ELSS mutual funds help investors to save taxes through tax deductions, tax exemptions, and the benefit of indexation. The Rs 1.5 lakh rupees that one invests can be deducted from the taxable income, and returns under Rs 1 lakh are exempted from taxation. Thus ELSS enables investors to save taxes and build wealth in the process.

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Highlighting the advantages that a mutual fund investor gets after investing in ELSS mutual funds Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "ELSS mutual funds have a lock-in period of only three years, which is less than other closed-ended funds and tax-saving instruments. This is ideal for investors looking only to save taxes and get back the capital along with any returns as soon as possible." Jhaveri said that there is no maximum limit to invest in ELSS mutual funds. The minimum limit is as small as Rs 500. Returns that a mutual fund investor gets in ELSS mutual funds are taxed at only 10 per cent. The returns are rather high because ELSS funds are based on the equity market.

On returns in ELSS mutual funds, both Jhaveri and Solanki said in unison that in any of the equity mutual funds, an investor who has remained invested for long-period means more than 10 years, one can expect at least 12 per cent returns.

Asked about some of the best-performing ELSS mutual funds Jitendra Solanki listed out the following top 5 ELSS mutual funds that an investor can think of putting money:

1] Axis Long Term Equity Direct-G;

2] Aditya Birla SL Tax Relief 96 Direct-G;

3] ICICI Pru Long Term Equity (Tax Saving) Direct-G;

4] Franklin India Taxshield Direct-G; and

5] DSP Tax Saver Direct-G.

Solanki said that the above-mentioned ELSS mutual funds have given returns in last three and five years, which are far above the rise in inflation, and when we add the income tax benefit in these ELSS mutual funds, the returns that an investor can expect can go further up than the actual returns showing on the paper.

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