ELSS: A mutual fund with tax exemption and returns; what expert says about ELSS investment

ELSS: Mutual funds have been gaining popularity because they have been delivering good returns in the last few years, they have diversified investments in many stocks; and people's increased awareness.

While you have to pay income tax on the income you earn from mutual funds, you don't get tax exemption from investment in them except one category.

That category is known as Equity Linked Saving Scheme (ELSS). 

While ELSS provides tax exemption up to Rs 1.50 lakh under Section 80 C of the Income Tax Act, many of them have also given impressive returns in the last three years.

For this reason, ELSS is also called the tax saving mutual fund scheme.

"ELSS investing is a great way to combine 80C tax deductions, equity investing, and long-term wealth creation. If you look at it from a behavioural perspective, a monthly ELSS SIP can also help you develop the habit of investing in equity in a disciplined way, avoiding short-term panic, and remaining invested for the long-term which gives you the best chance to grow your money at a fast rate and thus achieve long-term goals such as retirement savings, child’s education, or homeownership," says Adhil Shetty, CEO, Bankbazaar.com.

He adds, "The average 10-year annual returns from the ELSS category are around 16% today. A typical ELSS portfolio is diversified equity with exposure in fast-growing companies and therefore it gives you a higher possibility of accelerated growth."

ELSS also provides you tax exemption on long-term capital gains up to Rs 1 lakh. Know here more about ELSS mutual funds-

ELSS: 3-year lock-in period

In an ELSS scheme, you can deposit money in lump sum or through SIP.

Unlike, the five-year lock-in period in schemes like NSC and tax-saving FDs, the lock-in period in ELSS is three years.

After three years, you can withdraw your investment or can continue it.

ELSS: You can start investing even with Rs 500

In an ELSS mutual fund, you get the option to choose the scheme according to your budget and convenience.

You can start investing in it with just Rs 500.

There is no limit on maximum investment.

According to experts, long-term investment in ELSS can give better returns.

In such a situation, it is capable of wealth creation.

ELSS: Income tax Saving 

There is tax saving on exiting ELSS schemes after 3 years. In this, income tax exemption is available up to a maximum limit of Rs 1.5 lakh under Section 80C of Income Tax.

However, you can get the benefit of this deduction only if you have opted the old tax regime.

Apart from this, you get other tax exemption on the returns you get on investment.

Long-term capital gains on ELSS are tax free up to Rs 1 lakh.

Long-term capital gains above this are taxed at the rate of 10 per cent.

Apart from this, cess and surcharge have to be paid.

Top-5 ELSS mutual funds in the 3 years with returns 

Quant ELSS Tax Saver Fund
32.35% return

HDFC ELSS Tax Saver Fund
25.02% return

Bandhan ELSS Tax Saver Fund
24.94% return

SBI Long Term Equity Fund
24.71%

Bank of India ELSS Tax Saver Fund
23.88%