What is an ELSS Fund?
PTIC INDIA presents an opportunity to invest in a tax-advantaged mutual fund known as Equity Linked Saving Schemes (ELSS). This mutual fund pools funds from multiple investors and aims to generate returns through investments in businesses and other revenue sources. These returns are distributed to investors either through regular payouts or a substantial one-time dividend at the end of the fund’s tenure. ELSS, as a tax-saving mutual fund, not only facilitates wealth creation but also enables investors to avail deductions of up to Rs. 1,50,000 from their annual income in India.
How does ELSS work?
Diversified equity funds, commonly referred to as ELSS Funds, primarily allocate their investments across publicly traded firms’ equities in predetermined proportions aligned with the fund’s investment objective. These portfolios comprise stocks from various market capitalizations (Large Caps, Mid Caps, and Small Caps) and industry sectors, aiming to maximize long-term wealth appreciation. To achieve optimal risk-adjusted portfolio returns, the fund manager meticulously selects equities based on extensive market research.
What are the features of ELSS funds?
Shortest Lock-In: The ELSS has the shortest lock-in time, which is three years. Fixed deposits with a five-year lock-in period are available, while PPFs have a 15-year maturity. Overall, ELSS provides greater liquidity in the medium run.
Potentially Higher Returns: Unlike ELSS, which has a market-linked return, other 80C investments such as PPF and FDs are fixed-income instruments. In a medium to long-term investing horizon, ELSS has the potential to produce significantly more wealth.
Improved post-tax returns: ELSS Long Term Capital Gains are tax-free up to a ceiling of $1 lac. Gains over one million dollars are subject to a 10% tax rate. Lower tax rates combined with larger returns guarantee the best after-tax returns.
Regular investing is hassle-free and convenient: A monthly SIP is a simple way of investing in ELSS funds.
What are the tax benefits offered by elss?
Tax-saving mutual funds known as Equity Linked Savings Schemes, or ELSS funds, are one of the most popular techniques of tax planning. Since the returns are related to stock market performance, these funds have the potential to deliver higher returns than conventional tax-saving instruments. The majority of ELSS funds’ assets are typically invested in stocks. Under Section 80C of the Income Tax Act, 1961, you can obtain an income deduction of up to Rs. 1.5 lakh using ELSS in a financial year. This corresponds to a tax savings of Rs. 46,800 if you belong to the highest income category.
Reasons to invest in ELSS
Factors to consider before investing
Consider These Points Before Investing in ELSS Funds
- Fund returns: Before investing in a fund, compare its performance to that of its competitors and benchmarks to see if it has a track record of consistent performance. A fund produces high returns if it exceeds its benchmark or competitors.
- History of Fund house: Fund houses that have performed consistently over a lengthy period of time, say five to ten years, are suggested.
- Expense ratio: The expense ratio shows how much of your money is spent on fund management. It’s usually better to choose funds with a smaller expenditure ratio because it implies you’ll get bigger take-home returns.
- Financial parameters: When analyzing a fund’s performance, you can use metrics like Standard Deviation, Sharpe Ratio, Alpha, and Beta. A fund with a greater standard deviation and beta than that with a lower deviation and beta is riskier. Funds having a higher Sharpe ratio are better to invest in.
- Manager of the fund: Another element to consider is the fund manager, as he or she is the official in control of your funds’ management. The fund manager should be knowledgeable and experienced in selecting appropriate stocks and building a good portfolio.