ELSS stands for Equity Linked Savings Scheme, which is a type of mutual fund that offers tax benefits under Section 80C of the Income Tax Act, 1961. By investing in ELSS, you can claim a deduction of up to Rs 1,50,000 from your taxable income and save up to Rs 46,800 in taxes per year.
ELSS funds invest at least 65% of their portfolio in equity and equity-related securities, such as shares of companies listed on the stock market. They may also invest some portion in debt and other instruments to provide diversification and stability. ELSS funds have the potential to generate higher returns than other tax-saving options, such as fixed deposits or public provident fund, as they are linked to the performance of the equity market.
However, ELSS funds also come with some risks and limitations. One of them is the lock-in period of three years, which means you cannot withdraw your money before completing three years from the date of investment. Another one is the market risk, which means your returns may fluctuate depending on the market conditions and performance of the fund manager.
Therefore, before investing in ELSS, you should consider your risk appetite, investment horizon, financial goals, and tax situation. You should also compare different ELSS funds based on their past performance, expense ratio, portfolio composition and ratings. You can invest in ELSS either through a lump sum or a systematic investment plan (SIP), which allows you to invest a fixed amount every month.
To invest in ELSS, you need to have a PAN card, a bank account, and a KYC (Know Your Customer) verification. You can invest online through various platforms offline through an agent or a fund house. You will receive a statement of account or a unit certificate as proof of your investment. You can also track your investment performance through periodic reports or online portals.
However, not all mutual funds are suitable for tax saving purposes. You need to consider factors such as your risk appetite, investment horizon, financial goals, and tax bracket before choosing a mutual fund.
Here are some of the best tax saving mutual funds that you can consider for your portfolio:
- Axis Long Term Equity Fund: This fund is one of the most popular and consistent performers in the ELSS category. It has a large-cap bias and invests in quality companies with strong growth potential and competitive advantage. The fund has delivered an annualized return of 18.5% since its inception in 2009 and has outperformed its benchmark and category average in most periods.
- Mirae Asset Tax Saver Fund: This fund is a relatively new entrant in the ELSS category but has quickly gained a reputation for its stellar performance. It has a multi-cap approach and invests across sectors and market capitalizations. The fund has delivered an annualized return of 23.4% since its inception in 2015 and has beaten its benchmark and category average in all periods.
- DSP Tax Saver Fund: This fund is another consistent performer in the ELSS category. It has a flexible strategy and invests in companies that have strong earnings growth potential and attractive valuations. The fund has delivered an annualized return of 17% since its inception in 2007 and has outperformed its benchmark and category average in most periods.
These are some of the best tax saving mutual funds that you can invest in to save tax and grow your wealth. However, you should always do your own research and consult your financial advisor before making any investment decision.