In this video by Axis Mutual Fund, you will learn about an investment avenue that not only builds your wealth but saves taxes for you. Do let us know in the comment section if you want to start investing in ELSS tax-saving funds with Kuvera.
Individuals trading in the stock market always look for opportunities to maximize their returns, generate regular income, and even save taxes. Even though there are various investment options available in the market, most of them are taxed according to the Income Tax rules set by the government of India.
This is where one might want to look at ELSS – Equity Linked Savings Scheme is (as the name suggests) tax-saving equity mutual fund.
What are ELSS funds?
Investors trading in the stock market can choose equity schemes that save them tax. These are called equity-linked savings schemes – ELSS. They have a compulsory holding period of three years, and the returns made at the end of the lock-in duration are considered long-term capital appreciation. If the returns are over 1 lakh rs, a tax of 10% will be deducted.
Any fund that makes this possible by assisting you in investing in equity-linked savings schemes is called an ELSS fund. It is defined as an equity-inclined fund that permits individuals to invest in equity or related securities and make full use of tax deductions on the original amount. This tax deduction is as per section 80C of the Income Tax Act, 2013, which permits individuals to be exempted from tax until rupees 1.5 lacs are applicable on annual taxable income.
These funds have a significant portion of their asset allocation towards equity or equity-related instruments. Many tax-paying citizens have turned to ELSS for tax deduction benefits.
What are the features of ELSS?
- Up to 150,000 rupees of tax deduction of what you invest in an ELSS fund from your yearly taxable income under section 80C of the Income Tax Act, 2013. Even though only a predetermined limited amount is deductible (150,000 INR), one can always invest more if the scheme is going well or if they want to.
- There is a minimum lock-in period, which means that you mandatorily have to keep your funds invested for a minimum of 3 years. There are no provisions for a way out of that rule (for a premature exit). However, there is not a set rule on how long the money should be invested in the scheme after the holding period of 3 years.
- Any amount can be invested in an ELSS fund as there is no cap. The minimum amount that should be invested varies between fund houses.
- Investing in ELSS can be a very wise decision as it is one of the only schemes that can provide tax savings with inflation-beating returns, which gives an investor twice the benefits – of tax savings as well as wealth creation.
- A massive portion of the ELSS fund consists of equity or equity-related instruments, while some are also inclined towards fixed-income securities.
- ELSS funds can be customized to specific investment objects and an investor’s tolerance for risk.
- Any returns from an ELSS fund are taxable at the exact rate as any other source of income. Profits rendered through these funds are taxed as per the prevalent tax norms.
- As a long-term capital gain. Short-term returns are not valid for ELSS funds because the funds can’t be withdrawn before the holding period is over.
How to invest in ELSS funds?
Growth option:
As an investor, you will not receive gains in the form of dividends in this option. You will get your returns only at the time of redemption, which is subject to market fluctuations.
Dividend option:
As an investor, you will get timely dividends that are entirely free from tax. The dividends are only declared when there are excess profits.
Dividend Reinvestments option:
Under this option, the investor re-invests the dividends back, which works well when the market is doing increasingly well and is expected to do so continually.
What are the benefits of investing in ELSS funds?
-
Shortest time frame for lock-in:
With only 3 years of the lock-in period, it trumps tax-saving fixed deposits and PPF with a 15-year maturity. This aids in providing more liquidity for a lesser period.
-
The higher margin for returns:
ELSS is a market-dependent scheme instead of a fixed income scheme and hence has the potential to create high returns.
-
Better post-tax returns:
As a long-term capital gain. Up to 100,000 rupees is exempt from tax, and any returns more than that are taxed at 10%.
Frequently asked questions
-
What is the full form of ELSS?
The full form of ELSS is Equity Linked Savings Scheme.
-
What is the lock-in period for ELSS funds?
The lock-in period of ELSS funds is up to three years.
-
What maximum tax benefit can be availed by ELSS each year?
Up to 150,000 rupees of tax deduction of what you invest in an ELSS fund from your yearly taxable income under the section 80C of the Income Tax Act, 2013
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch/hear on YouTube:
Start investing through a platform that brings goal planning and investing to your fingertips. Visit Kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.
#MutualFundSahiHai #KuveraSabseSahiHai!
