Equity-Linked Savings Schemes (ELSS) are a compelling option for investors seeking tax-saving benefits under Section 80C of the Income Tax Act, 1961. Offering both high potential returns and the shortest lock-in period among tax-saving tools, ELSS funds have become a popular choice for savvy taxpayers.
With the tax-saving season in full swing, here’s an in-depth guide to understanding ELSS funds and the top performers delivering annualized returns of over 17%.
Why Choose ELSS Funds for Tax Savings?
An investment of up to ₹1.5 lakh in ELSS within a financial year is eligible for tax deductions under Section 80C. ELSS combines tax benefits with equity exposure, offering the potential for high returns.
Key Features of ELSS Funds:
- Lock-In Period: Only 3 years, the shortest among tax-saving tools.
- Minimum Investment: Start with as little as ₹500 via SIP or lump sum.
- No Maximum Limit: You can invest any amount, though tax benefits cap at ₹1.5 lakh.
- Dual Benefits: Tax savings and wealth creation through equity investments.
Top 3 ELSS Funds for 2024-25
Here’s a detailed look at three top-performing ELSS funds, their returns, and key metrics:
1. Quant ELSS Tax Saver Fund – Direct Plan
This fund has delivered remarkable returns, making it one of the top choices for ELSS investments.
| Metric | Details |
|---|---|
| Benchmark | BSE 500 TRI |
| Expense Ratio | 0.59% |
| 10-Year Annualized Return | 20.88% |
| SIP 10-Year Annualized Return | 23.65% |
| Riskometer Level | Very High |
Performance Example:
- A SIP of ₹10,000/month over 10 years would have grown to ₹41.94 lakh.
- A lump sum of ₹1 lakh invested 10 years ago would now be worth ₹7 lakh.
2. Bank of India ELSS Tax Saver Fund – Direct Plan
Known for its consistent performance, this fund offers strong long-term returns.
| Metric | Details |
|---|---|
| Benchmark | BSE 500 TRI |
| Expense Ratio | 0.84% |
| 10-Year Annualized Return | 17.55% |
| SIP 10-Year Annualized Return | 20.42% |
| Riskometer Level | Very High |
Performance Example:
- A SIP of ₹10,000/month over 10 years would have grown to ₹35.22 lakh.
- A lump sum of ₹1 lakh invested 10 years ago would now be worth ₹5 lakh.
3. JM ELSS Tax Saver Fund – Direct Plan
This fund has been a consistent performer with stable annualized returns.
| Metric | Details |
|---|---|
| Benchmark | BSE 500 TRI |
| Expense Ratio | 1.27% |
| 10-Year Annualized Return | 17.01% |
| SIP 10-Year Annualized Return | 19.79% |
| Riskometer Level | Very High |
Performance Example:
- A SIP of ₹10,000/month over 10 years would have grown to ₹34.04 lakh.
- A lump sum of ₹1 lakh invested 10 years ago would now be worth ₹4.81 lakh.
Comparing ELSS With Other Tax-Saving Instruments
ELSS stands out for its shorter lock-in period and potential for higher returns compared to traditional options like Public Provident Fund (PPF) or National Savings Certificate (NSC).
| Feature | ELSS | PPF | NSC |
|---|---|---|---|
| Lock-In Period | 3 years | 15 years | 5 years |
| Returns | Market-linked (~16-20%) | Fixed (~7.1%) | Fixed (~6.8%) |
| Risk | High | Low | Low |
Key Considerations for ELSS Investments
- Risk Factor: ELSS invests in equities, making it subject to market fluctuations. It is best suited for investors with a long-term horizon.
- Tax Implications: Gains above ₹1.25 lakh are taxed at 12.5% as Long-Term Capital Gains (LTCG).
- Goal Alignment: Ideal for long-term wealth creation while saving taxes.
FAQs
What is the lock-in period for ELSS funds?
ELSS funds have a lock-in period of just 3 years, the shortest among tax-saving tools.
Can I invest more than ₹1.5 lakh in ELSS?
Yes, but tax benefits are capped at ₹1.5 lakh under Section 80C.
How risky are ELSS funds?
ELSS funds invest in equities and are considered high-risk, suitable for long-term investors.
What is the minimum investment required for ELSS?
You can start investing in ELSS with as little as ₹500.
Are returns from ELSS guaranteed?
No, ELSS returns are market-linked and can vary based on equity performance.
Can I withdraw my money before 3 years?
No, ELSS funds have a mandatory lock-in period of 3 years.
Is ELSS better than PPF?
ELSS offers higher returns but comes with higher risk. PPF is safer but offers lower returns.
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