ELSS Mutual Funds (Equity Linked Savings Scheme) is a diversified tax saving mutual funds that invests primarily in equity and equity related instruments. They come with a lock-in period of three years and provide investors the dual perks of the tax exemption under Section 80C of the Income Tax Act and capital appreciation.
The below table is a comparative representation of the three investment strategies-ELSS, NSC and PPF:
|Minimum lock-in period||3 years||5 years||15 years|
|Taxation of interest or dividend||Presently, dividend is not taxed but starting April 1st, 2018, dividend from ELSS will be subject to dividend distribution tax at 10%||Interest earned on NSC is taxable under “Income from other sources” but since the interest is gain reinvested in NSC, it becomes eligible for deduction u/s 80C||Tax free|
|Taxation at the time of redemption||Presently, LTCG on redemption of ELSS is not taxable in the hands of investors but starting April 1st, 2018, it will be taxed at 10% on the gains in excess of Rs. 1 lakhs in a financial year.||Tax free||Tax free|
|Returns||They have delivered average returns in excess of 15% over the past few years||7.6% compounded annually||7.8%|
|Minimum investment||Rs. 500||Rs. 100||Rs. 500|
|Maximum investment||No limit||No limit||Rs. 1,50,000|
ELSS mutual funds is an equity-based investment option and therefore, are subjected to market fluctutions but is more profitable than the other two options in the long term. They can help you earn an inflation beating returns of 14% to 16% if invested for a longer period. Hence, top ELSS funds is an lucrative investment option.
The recent budget announcement has posed a major mayhem on individuals who opt the ELSS strategy of investment.The Finance Minister has announced a 10% Long Term Capital Gain(LTCG) tax on the equity and other related tax saving mutual funds post January 31st, 2018. But this LTCG tax is only for gains above 1 lakh in a financial year, therefore, the new investors need not be perplexed.
On the whole, ELSS mutual funds is still the best vehicle to hop on to fulfill your long-term financial vision. “Start early-invest less and earn more” is the mantra to be followed.
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