SIP in ELSS for Tax Saving: Now only about 4 months are left for the end of the current financial year. In such a situation, many people become aware of their tax saving investments. Although it is better to invest throughout the year for tax saving, those who might not have been able to do so during the last few months, still have a chance to do so. Equity Linked Savings Scheme (ELSS) is always named among the tax saving investment options. The biggest feature of ELSS is that by investing in it you can not only save tax but also get very attractive returns. You can also invest in ELSS through Systematic Investment Plan (SIP). Many top rated ELSS funds of the country have given excellent returns on SIP to their investors in the last 5 years. Such 5 top funds have doubled or more the fund value of money invested through SIP in the last 5 years. We will give further information about these top 5 ELSS and their tax saving rules, but before that let us take a look at the features of ELSS.
ELSS investment strategy
Under SEBI rules, it is necessary to invest at least 80% of any Equity Linked Saving Scheme in stocks. The remaining 20% can be invested in other assets. The main objective of ELSS is to earn profits through tax saving as well as investment in equity portfolio. The special thing is that the lock-in period of ELSS is only 3 years, which is the lowest among all the tax saving schemes. However, if investment in this scheme is maintained for 5 years or more, then it is better for wealth creation.
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Scheme to double money in 5 years through SIP
Here we are giving you information about those top rated ELSS schemes, whose direct plans have almost doubled or more the money of those investing through SIP in the last 5 years.
1. Motilal Oswal ELSS Tax Saver Fund (Direct Plan)
Value Research Rating: 4 stars
SIP return in 5 years (annulized): 32.15%
SIP return in 3 years (annulized): 38.95%
Monthly SIP: Rs 10 thousand
Total investment in 5 years through SIP: Rs 6 lakh
Fund value after 5 years: Rs 13,34,838
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2. Quant ELSS Tax Saver Fund (Direct Plan)
Value Research Rating: 5 stars
SIP return (annulized) in 5 years: 30.31%
SIP return (annulized) in 3 years: 21.71%
Monthly SIP: Rs 10 thousand
Total investment in 5 years through SIP: Rs 6 lakh
Fund value after 5 years: Rs 12,90,405
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3. SBI Long Term Equity Fund (Direct Plan)
Value Research Rating: 5 stars
SIP return (annulized) in 5 years: 30.06%
SIP return in 3 years (annulized): 32.94%
Monthly SIP: Rs 10 thousand
Total investment in 5 years through SIP: Rs 6 lakh
Fund value after 5 years: Rs 12,61,442
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4. HDFC ELSS Tax Saver Fund (Direct Plan)
Value Research Rating: 4 stars
SIP return (annulized) in 5 years: 27.61%
SIP return in 3 years (annulized): 28.51%
Monthly SIP: Rs 10 thousand
Total investment in 5 years through SIP: Rs 6 lakh
Fund value after 5 years: Rs 11,87,946
5. Bank of India ELSS Tax Saver Fund (Direct Plan)
Value Research Rating: 4 stars
SIP return (annulized) in 5 years: 27.34%
SIP return in 3 years (annulized): 27.83%
Monthly SIP: Rs 10 thousand
Total investment in 5 years through SIP: Rs 6 lakh
Fund value after 5 years: Rs 11,87,399
How much tax exemption is available on ELSS?
Investments made in ELSS are tax exempt under Section 80C of the Income Tax Act. This benefit is available on maximum investment of up to Rs 1.5 lakh during a financial year. After 3 years of lock-in, tax exemption is available on the profits made on selling units of ELSS funds. Due to this, no income tax has to be paid on Long Term Capital Gains (LTCG) i.e. profits up to Rs 1.25 lakh made during a financial year. If the profit is more than this, long term capital gains tax is levied at the rate of 12.5%. This tax is also lower than the higher tax slab. This is the reason why ELSS is considered a very good scheme in terms of tax savings.
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Keep market risk in mind
Since 80% of ELSS investments are in equity i.e. shares, they are greatly affected by market fluctuations. This is the reason why these funds are kept in the category of ‘Very High Risk’. However, if investment is made for long term through SIP, it helps in reducing market risk. But still market risk does not end. It would be better if you assess your risk appetite before deciding to invest in ELSS.
(Disclaimer: The purpose of this article is only to provide information about the scheme and not to recommend investment. The past returns of a mutual fund cannot be considered as a guarantee of future performance. Any investment decision should be taken after taking the advice of your investment advisor. Do it later.)
