ELSS Funds for tax saving under Section 80C; know all the benefits

ELSS tax saving funds: As the financial year comes to a close and individuals seek avenues for tax savings under Section 80C, Equity Linked Savings Schemes (ELSS) emerge as a popular choice. With the potential to provide tax benefits of up to Rs 1.5 lakh, ELSS presents investors with an opportunity to save on taxes while investing in equities.

What exactly is an ELSS or tax-saver fund? ELSS funds invest in stocks. They can be actively managed by fund houses or passively managed. By investing in these funds, investors can save taxes up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Many investors choose ELSS for tax benefits and exposure to the stock market. Investments in ELSS are locked in for 3 years. After this period, investors can sell or hold their investments as they wish.

What makes ELSS different from other Section 80C investments?ELSS offers a significant advantage with its shorter lock-in period of three years. In contrast, tax-saving bank FDs and the post office national savings scheme have a longer lock-in period of five years, while the public provident fund (PPF) requires investors to commit for 15 years. ELSS returns are tied to the market, potentially yielding higher returns over the long term compared to fixed-income products. Over the past decade, ELSS schemes have delivered an average return of 16.26%, according to data from Value Research quoted by ET.

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Where do ELSS funds invest? ELSS funds function similarly to diversified equity funds, allowing flexibility to invest in a variety of large, mid, and small-cap stocks at the discretion of the fund manager. Their performance is compared to an index for evaluation. Most ELSS schemes are actively managed, employing a flexicap approach. Some schemes also include investments in mid and small-cap stocks to diversify their portfolio.

How to invest in an ELSS fund?Investors have the option to make a lump sum investment or set up a systematic investment plan (SIP) for staggered investments. They can choose to invest in one scheme or spread their investments across multiple schemes. The minimum investment amount for a scheme is Rs 500.

What taxes apply to gains from ELSS investments?Investments in ELSS qualify for tax exemption under Section 80C. However, capital gains from ELSS are taxed similarly to equity instruments. Long-term capital gains (LTCG) are applicable if the gains exceed Rs 1 lakh in a financial year, taxed at a rate of 10% on the amount exceeding Rs 1 lakh.

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