Equity-linked savings schemes; save on taxes, gain on returns
30-09-2017 Sat 06:21

You might have heard of Equity-linked-savings-schemes (ELSS) or mutual fund schemes. ELSS is an investment scheme that everyone, including salaried persons and tax payers should know about.
Very few know comprehensively about ELSS. They know that it is a tax saving scheme, but many are not aware of the rules and regulations. These schemes were first introduced in 1991. Under ELSS, exemption is granted on Rs. 10,000 investments, under Section 80 ccb. Later, this section was included in Income Tax (IT) Act. Later, this was replaced by Section 80 c that was implemented from April 1st, 2005. It is well-known that under Section 80 c, at present, an investment of Rs. 1.5 lakh in various schemes is exempted from tax. Such investments can be made under ELSS, for tax exemption.
Lock-in Period

Types of ELSS
Even though the rules and regulations for all ELSS are the same, they can be categorised, on the basis of the type of investment being made. The amount of investment to be made in large cap, mid cap, small cap and stocks, differ under ELSS. Some are primarily focused on large cap. Some allot more funds under mid cap and small cap. Large cap funds are more stable than those under mid cap or small cap. Risk factor is less in large cap, when compared with the others.
Schemes depend on risk factor
Experts suggest that investments under ELSS should be selected, not based on functioning but on the risk factor that is involved. Those willing to take a high risk and desire high returns, should go in for midcap stocks, like Reliance Tax Saver Fund, Sundaram Tax Saver Fund, IDBI Equity Advantage. These promise returns of 24 to 25.5 per cent returns in a period of three years. Those who want stable funds can go in for large cap schemes like Franklin India Tax Shield, DHLF Pramerica Tax Savings or Edelweiss Tax Advantage. These have given an average of 17.92 per cent returns in three years. While Franklin tops in these schemes, Edelweiss is giving less than 13 per cent returns. Those who wish to invest between these two, can go in for Axis long term equity, Birla Sun Life Tax plan or ICICI Prudential Long term plans. Returns in these schemes are between 20 to 21.63 per cent for three years, under these schemes.
Commitment essential

Why only ELSS?
Experts say that instead of choosing any random saving scheme just to avoid taxes, you should choose investment schemes that would allow you to satisfy your needs and reach your goals. If you choose an ELSS investment for tax exemption, you will get returns from 18 to 20 per cent. If only good returns is the goal of investing, you can choose any scheme that would give returns over and above ELSS. Moreover, there is a risk factor in all ELSS investments. But under SIP investments, risk factor is almost nil in the long term. As investments continue in market highs and lows, cost price is reduced. Returns are rich.
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