In any investment, tax saving forms a major point of accrues benefits and as such tax exemptions form some of the major areas of concern when it comes to investment channels and their benefits. Equity Linked Saving Schemes or ELSS funds have always been formulated and have been understood as tax saving schemes since they offer tax exemption of up to Rs.150,000. This exemption is as per Section 80C of the Income Tax Act, 1961, and is deductible on the annual income under this Section.
When an investor buys a mutual fund, a significant part of the costing goes into paying the organization for allotment of the services of an Account Specialist or a Fund Manager. This means that as an investor, you pay for the specific allotment of someone who will work for your account benefits. This is one of the major advantages of Equity-Linked Schemes as the whole spectrum of operations now works on the basis of your coordination with the fund manager. This no doubt entitles you to receive the services of a portfolio manager who knows where to invest your assets and does a credible job as an allocator of your overall benefits so that you can earn decent and stable benefits.
Although there are various such schemes, yet Mutual Equity Linked Saving Scheme or ELSS is the scheme that you should aim for. This is because ELSS funds and related schemes primarily invest in the stock market or Equity. Therefore, any or all investments up to Rs.1,50,000 that you make in such schemes i.e. in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act, 1961. Furthermore, a lock-in period of three years ensures that the overall benefits are stable and that the maturity period remains low. What this essentially means is that as an investor, anyone can indulge in the sale of the investment fund value after this maturity period i.e. three years.
How do these funds work?
Being a core component of diversified equity classification, ELSS funds actually come under the category of the short lock-in period, garnered benefit mutual funds and as such, the basis of ELSS fund-allotment is equity. These funds rely on a major chunk of investment in stocks of listed companies. This investment is done as per a specified proportion and the allotment is decided by the fund managers in direct consultation with the investor. Given the fact that capping of companies’ stocks plays an important role, therefore, the whole gambit of proportionate allotment of funs is done as per this capping and therefore, funds are allocated in a balanced manner in Small, Mid-Cap and Large-Cap companies’ stocks, as demanded by the specific needs and requirements.
Investment in ELSS
Investment in ELSS should ideally be followed up with a detailed analysis of the effect of changes in an investment portfolio, costing involved, net goals, strategies and the final investment mix. What this means is that these factors are inter-related and hence, choice of investment and the planned benefits form an important platform for anyone to take the decision to invest in ELSS. Broadly speaking, the overall planning for ELSS investment must be based on the factors as are listed here:
Profitability: The investment portfolio, after investing in ELSS must be such that the cost per investment should be optimum and within the planned spectrum. Any over-shooting or unplanned cost, if bound to increase, must be discussed and averted after due consultation with the fund manager.
Solvency of investment channel: Excessive debt threatens the solvency of your investment channel and must be avoided at all costs. It must be kept in mind that no deal is better than a bad deal.
Flexibility: The portfolio after ELSS investment must be flexible enough to meet the changing market conditions and required investment decisions. It should be possible for an investor to adapt the portfolio to minimum cost requirements and even delays, in situations where the same is called for. It should be possible for the investor to keep funds available for financing any other investment venture as and when required.
Due thought must always be given to the investor’s overall flexibility when it comes to the diverse market operations and the need to have a shielded corpus in pace even after ELSS allotment. Hence, ELSS investment must always be done with an eye on the accrued benefits and for tax exemptions in the due course of time, as and when the corpus gets accumulated.
Things to be considered:
Returns: Fund performance is always an important benchmark and must be understood in its totality. The performance of a fund must never be taken in view with untrained expectations or without proper analysis of the market trends, as this can prove to be counterproductive.
Reputation and goodwill of the firm:
Whatever you choose, it must be from a list of reputed firms with a significant degree of market-goodwill. This means that any decision to allow your funds to specific investment channels must be based on market analysis and careful weighing of the available options.
Fund manager: A careful choice of Fund Manager is very important as it allows you to allocate significant yield in an effective manner. What this means is that a fund manager knows where to park your funds so that the returns on investment are stable and keep in growing at an optimum rate over a period of time. The degree of knowledge and expertise possessed by a fund manager is one of your core strengths while deciding on a course of possible investment and this is more so for an equity-linked instrument like ELSS.
Top performing ELSS funds:
These days, owing to a number of parameters, the range of top-performing ELSS is quite diverse and is as listed below:
- Canara Robeco Equity Taxsaver Growth
- DSP Tax Saver Fund Growth
- Axis Long Term Equity Fund Growth
- Mirae Asset Tax Saver Fund -Regular Plan-Growth
- Aditya Birla Sun Life Tax Relief 96 Growth
- Kotak Taxsaver Fund Growth
- UTI Long Term Equity Fund – Regular Plan - Growth
- ICICI Prudential Long Term Equity Fund (Tax Saving) Growth
- Edelweiss Long Term Equity Growth
- SBI Magnum Long Term Equity Scheme Regular Growth
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