ELSS or Equity Linked Saving Schemes is one of my favorite Tax Savings Instrument. ELSS is a type of Equity Mutual Fund in which you will get Tax benefits under Section 80C of Income Tax Act. ELSS has shortest lock-in period of just 3 years among all the Tax Saving Schemes. Like other Equity Mutual Funds, ELSS also invest in Stock Market specially in Equity segment.
It’s a high risk investment because of equity exposure & returns are not fixed like other tax saving schemes. You can invest any amount in ELSS but tax benefit under section 80C can be availed for max amount of Rs 1,00,000 during Financial Year. Another advantage of ELSS investment is that Long Term Capital Gain or Dividend received from ELSS are Tax Free. To compare performance of various ELSS funds Click Here
ELSS Investment Options
The biggest dilemma for any investor while investing in ELSS is to decide, which option to select from Growth, Dividend & Dividend Re-Invest. In my personal opinion, Growth option is the best option but majority of investor avoid this option as NAV is high in this option. Your personal banker project that Mutual Fund with high NAV is costly and you will get less units. It is very misleading and i will discuss this topic in separate post. Lets understand all 3 options one by one & find out why Growth option is the best one.
1. Dividend option: Normally fund houses declare dividend for ELSS between Jan-Mar of financial year. Its a marketing gimmick and your Personal banker will convince you to invest Rs 50,000 and you will get back Rs 4,000 as a Dividend in few months. USP is by doing net investment of only Rs 46,000, you will save tax on Rs 50,000 as per IT slab.
It is not true as the dividend received within 1 year of investment is taxable. Secondly, Dividend option deplete your investment and is not desirable for long term capital appreciation. Dividend option should be avoided if you wish to invest smartly in ELSS, which i will explain towards the end. Lastly, Dividend in ELSS is not similar to dividend declared in Shares. Dividend declared in ELSS reduce your investment by equivalent amount as NAV will reduce to same extent as the dividend is declared on per unit. If dividend declared is Rs 2 per unit then NAV will also reduce by 2 Rs thus it is your own money which you are getting back as dividend.
In short, its better to rule out Dividend Option.
2. Dividend Re-Invest Option: This is the worst option among all 3 options. Important point to note is that any dividend re-investment is considered as fresh investment in ELSS and is again locked-in for next 3 year. E.g. if i invested 50k in ELSS this year i.e. January, 2014 and selected Dividend Re-Invest option. My investment is locked for 3 years & i can redeem only in Feb, 2017. Assuming MF will declare dividend every year i.e. 3 times in Jan 2015, Jan 2016 & Jan 2017 (It is normal practice for ELSS to declare dividend every year). In this case, Dividend Re-invested in Jan 2015 will be locked for 3 years more years i.e. can be redeemed in Jan 2018. Similarly dividend re-invested in Jan 2016 & Jan 2017 can be redeemed only in Jan 2019 and Jan 2020 respectively…Effectively your partial investment is locked for 6 years from the date of investment.
I think above example is self explanatory to suggest that we should avoid Dividend Re-invest option at any cost.
3. Growth Option: In this option, MF (Mutual Fund) does not declare regular dividends i.e. income earned is not distributed among investors but keep getting added to capital invested. Any upside in investment keeps accumulating thus NAV keep increasing and at the time of redemption only, an investor can book long term capital gain/loss. This option exploit power of accumulation. In my opinion, this is the best option to invest in ELSS. Also by using Growth option, you can invest smartly. Lets understand how.
How to Invest Smartly in Equity Linked Saving Schemes (ELSS)
Every year i have seen my friends getting worried about year end investments to save tax. What if, you need to invest only for 3 years & then no tension of tax investment through out life. I will take my example to explain. I invested Rs 50k every year for 3 years in ELSS in Jan 2004, Jan 2005 and Jan 2006. I opted for growth option and after that i am not at all worried about tax investment. My investment of Jan 2004 matured in Jan 2007 and after redemption, i re-invested 50k in ELSS & balance amount booked as profit. Amount redeemed was tax free and re-investment of same made me eligible for tax benefit under section 80C. Similarly investment of Jan 2005 and Jan 2006 matured in Jan 2008 & Jan 2009 respectively which i re-invested in ELSS same year thus received tax benefits. This cycle is still continuing and by smart investment, i am getting tax benefit every year without any incremental investment from my end. I book the profit and re-invest 50k in ELSS every year.
Word of Caution: In the new draft direct tax code proposed by Govt of India, the tax benefits attached to ELSS are withdrawn. Though final decision is not taken regarding new Direct Tax Code. If it will be implemented on “As is basis” then ELSS will be excluded from list of tax saving instruments.
Some of the FAQ’s:
Query 1: Ms. Sunaina Sharma from Shimla asked me why i have not suggested SIP route to her for ELSS investment.
Answer: Every SIP installment carries a lock-in period of 3 years e.g. If you start SIP from Apr 2013 to Mar 2014 then Apr 2013 SIP installment will mature in Apr 2016 and Mar 2014 SIP will mature in Mar 2017. It is very difficult to keep track of SIP investments in ELSS. At max you should invest only in 2-3 installments during FY at a gap of 3-4 Months but you should avoid monthly SIP.
Query 2: Mr. Swapnil Jadhav from Mumbai asked me, What should be selection criterion of ELSS mutual fund for investment?
Answer: In my opinion, there are multiple factors though there is no fool proof method to identify right ELSS fund. If investment amount is big then you may invest in 2-3 funds to hedge risk. Couple of criterion which i consider are
AUM (Asset Under Management): It shows investors confidence in the fund
CRISIL Ranking: CRISIL rank mutual funds scientifically and i trust CRISIL Ranking.
I tried to cover all the points related to ELSS. Please share you feedback/input/query through following comments section.
Copyright © Nitin Bhatia. All Rights Reserved.
Kindly tell of good ELSS scheme giving good returns. My e-mail is rajivahuja06@gmail.com
I have shortlisted following funds for my investments. Just to add, Future returns cannot be guaranteed based on current performance
1. Axis Long Term Equity Fund
2. ICICI Prudential Tax Plan
Thank you.
can you please suggest good ELSS scheme giving good returns for this year
1. Axis Long Term Equity Fund
2. Reliance Tax Saver Fund
3. Franklin India Tax shield Fund
is it a good time to invest in ELSS, as the market is bullish?
I will not suggest lump-sum investment. Start with small amount through SIP in 2-3 good funds.
Hi Nitin,
I need to invest 40000 Rs in order to avail the tax benefit under section 80 c. Below are options that I believe I have.
– Investing 40000 in 4 different ELSS schemes. This dosent looks attractive as all NAV’s are too high and will remain till March end. Please correct me if i am wrong.
– Investing 36000 in PPF account and investing the remaining in 4 different ELSS schemes In SIP of 1000 each so that I get the benefit for the entire year.
– Investing 40000 in PPF and start investing the same amount in ELSS SIP from the next financial year April 2015 Assuming the NAV’S would go down then.
Lease let kniw if anything mentioned above Is not correct and what should be the best way of investing my funds. Out of 150000 excemption limit, I already have LIC OF 23000, Term Insurance of 4000 and a 5 years tax saver FD of Rs 50000 and a pf of 23000 which leaves me with 40000 to invest
Thanks
Kapil Agarwal
For current FY, its too late to invest in ELSS and markets may move either ways. If you wish to take risk free approach then i suggest you to invest 40000 in PPF. In case of balanced approach, you may invest 20000 in PPF and rest 20000 in Blue chip ELSS fund. .
Hi Nitin ,
I have not utilized 80c investment for this financial year. Could you please suggest me the best way i can use it.
I am ready to take risk in investment but it should pay me of in long term.
Looking forward for your reply
Please let me know the amount you are planning to invest
I am planning to invest 1lakh 50 thousand sir to save the tax.
Though i will suggest SIP route for ELSS but if you are planning to invest for current FY then you can invest Rs 75000 in PPF and balance 75000 should be invested equally in following 3 funds
(a) Axis Long Term Equity Fund
(b) Franklin India Tax Shield
(c) ICICI Prudential Tax Plan
hello sir, i want to invest 1.5L in ELSS now, please tell me which to invest and how much please.. thank you,
Though i will not suggest lump sum investment as the risk high. If you wish to invest for tax saving for current FY then you can invest in following 5 funds Rs 30,000 each
(a) Axis Long Term Equity Fund
(b) Reliance Tax Saver Fund
(c) Franklin India Tax Shield
(d) BNP Paribas Long Term Equity
(e) ICICI Prudential Tax Plan
Thank you sir. Hw about HDFC tax saver. birla sunlife . Tata tax saver…
Based on current performance, I will stick to my suggestions if i have to invest. You may invest in funds suggested by you depending on your requirement and investment objective.
Dear Sir
I am new to mutual funds. I plan to invest approx. Rs 50,000 in ELSS to save tax and at the
same time, get good returns on my investments. Can you please suggest me which
fund or funds I should opt for, invest as a lump-sum or as SIP, for what
duration, and how to go about this investment-through an agent or directly
online?
Regards
Dr.Syamal Modi
You may opt for SIP of Rs 2000 in following 2 funds for 1 year. I suggest you to open Mutual Fund account with your bank example ISA (Investment Services Account) with HDFC Bank. If you have demat account then some demat accounts provide facility to invest in Mutual Funds. In my opinion following are good funds
(a) Franklin India Tax Shield
(b) ICICI Prudential Tax Plan
Sir ,
In open ended mutual fund , what is the duration for which you have to stay in the fund. If I decided to sell the fund can I get back all the money i have invested in one shot ?
You have not mentioned the fund type in which you are investing. Mutual fund transactions are based on NAV of fund. At the time of sale if NAV is higher than NAV at the time of purchase then you will book profits else you will incur loss. Holding period depend on your investment objective.
Dear Sir
I plan to invest in my spouse’s name approx. Rs 43,000 yearly in tax saving schemes(ELSS, PPF etc.) starting from April 2015. Can you suggest which schemes/funds to select, whether to go for single investment or SIP and how to proceed so that I get good returns as well. Also, please do suggest a few good non-ELSS mutual funds for investing about Rs 85000 yearly.
Regards
Dr.Syamal Modi
I have already answered your query. Please check trail comments. Kindly do not post same query multiple times.
Sir, I need to invest approx Rs 60000/- in this FY in order to avail 80c benefit to save tax. These are the options I am presently thinking.
1. To invest Rs 35000/- in 5 yr tax savings scheme and the rest Rs 25000/- in ELSS.
2. Invest Rs 30000/- in PPF and remaining Rs 3000/- in 5 yr tax saving scheme
3. Invest Rs 35000/- in PPF and remaining in ELSS.
Request your suggestion whether there is another option I should go for? Rest amount, out of Rs 1.50 Lacs is invested in LIC and PF under NPS scheme. Also if I invest in ELSS, then which fund I should invest considering that it is already March and I have to invest lump sum?
I will not suggest lump sum investment in ELSS at this point. If you are keen to invest in ELSS then you may invest 40k in PPF and 10k each in following 2 funds.
(a) Franklin India Tax Shield
(b) ICICI Prudential Tax Plan
Sir
I want to invest Rs 1000 monthly in SIP/Rs 12000 per annum. I would like to go for ELSS to save tax as well as get good returns. Can you suggest some good fund/funds for the same? Can I go through funds india for my investment or go through a bank? What duration should I choose considering that I don’t want to block my money for a long period?
Thanks and regards
Dr Smriti Modi
Patna
You may opt for
(a) Franklin India Tax Shield
(b) ICICI Prudential Tax Plan
I suggest you to open Mutual Fund account linked to your savings account like ISA (Investment Services Account) of HDFC Bank. You can invest in any mutual fund through such accounts.
ELSS is locked for 3 years therefore you may invest for time horizon of 3 years.
Sir
I had inquired earlier about investing 50K in ELSS by SIP mode. But considering your example in this post, would it be better if I invest 50000 Rs in April every year for the next 3 years, and then follow your case of re-investing the principal and booking the balance as profit ? Please suggest which funds to select and how to distribute the amount ? Should I go for growth option ? Are websites/companies like fundsindia a safe channel for mutual fund investment ?
I already suggested funds to you. You may opt for Growth option. You can open Mutual Fund account with bank like ICICI Bank or HDFC Bank.
Dear Nitin,
I am very new person who is starting in Mutual Fund Investments. ACtually I have studied and selected 4 ELSS funds to invest in via SIP. I am trying to invest in these below given funds (Amount Rs. 1500 each).
(a) Axis Long Term Equity Fund
(b) Reliance Tax Saver Fund
(c) ICICI Prudential Tax Plan
(d) Birla Sun Life Mutual Fund Tax 96
Please tell me Should I go for it for 5 Years SIP. My Horizon is 10 years. Please tell asap.
Thanks
You should go for 1 year SIP and evaluate performance after 1 year.
Dear Nitin, Article is very helpful indeed. Especially some low level details of how dividends get paid… Almost no other article mentioned that dividend received inside an year is taxable. Very good point.
Your 3 year ELSS cycle is a simple but intelligent idea, I liked it. Congratulations that you have been in this cycle earning profits as mentioned and wish the same for future too. Just to add a point please mention the other scenario also where the fund brings losses after three years, and we need to add fresh funds to complete cycle.
It is situational but you can transfer funds from ELSS to best performing large cap funds.
Is this right time for lumsum investment in tax saver ELSS?
I will not suggest. You may start investing through SIP for next 6 months.
Dear Sir ,
I have to utilise 80c investment for this financial year. Could you please suggest me the best way to diversify my portfolio.
Currently I am investing 1 lac in LIC premiums.
I am interested to balance my investments from risk and returns point of view in long term.
Looking forward,
It depends on multiple factors like age, risk, financial objective etc. Prima facie, you can invest in ELSS.
Am an going to invest in MF for first time and do research on various investments, my question is What if MF doesnt have CRISIL rating ex: SBI Small & Midcap Fund – Direct Plan (G) have done well in past but doesnt have rating kindly guide me as am looking to invest in MF through SIP. Kindly guide me in muthu1086@gmail.com
Its a good fund though not rated by CRISIL or Moneycontrol.
Thankyou for your reply, after some research i planned to invest as follows, kindly let me know your view on this.
HDFC Balanced Fund – Direct Plan (G) – 1000
SBI Small & Midcap Fund – Direct Plan (G) – 1000
Tata Balanced Fund – Regular Plan (G) – 500
UTI MNC Fund (G) – 500
and i decided to invest through fundsindia, is this the right approach, waiting for your guidance.
Thank you.
Fund selection depend on investment objective and risk appetite. You may invest directly through online mutual fund platform.
Hi Nitin,
If I invest in ELSS SIP now, will I keep getting the tax benefit even after introduction of DTC?
It depends whether Govt retain ELSS under section 80C in final draft of DTC.
Sir
I want to invest Rs 1000 monthly in SIP/Rs 12000 per annum. I would like to go for ELSS to save tax as well as get good returns. Can you suggest some good fund/funds for the same? Can I go through 3rd party for my investment or go through a bank? What duration should I choose considering that I don’t want to block my money for a long period?
Thanks and regards
Dr Smriti Modi
Patna
Can you please tell me what is the maximum duration, for which I can keep the ELSS, if I want to continue beyond 3 years?
There is no such limitation. After lock in period of ELSS you can retain till indefinite period.
Good Morning Nitin,
I am an employee, earning Rs.30000 per month.
And I am planning to invest Rs.30000 per month in SIP.
My question is –
I). Am I eligible to invest whole of my income in SIP for 5 years?
II). What is the lowest recorded Rate of Return in an SIP of 5 years plan?
III). What will be the rate of income tax, 2016 on a matured SIP of Rs.25,00,000 (13% rate of return, 5 years plan) ?
Please enlighten me.
Regards
NB Meitei
1. You can invest 100% income but it may raise suspicion to Income Tax Department i.e. how you are managing household expenses.
2. The worst performing funds delivered negative return
3. There is no capital gain on equity investment with holding period of more than 12 months. In short, at the time of maturity your gain from last 12 SIP investments will be short term capital gain & will be taxed at 15%. Gains on balance SIP’s will be long term capital gain & will be tax free.
Hi Nitin..
I want to invest Rs60k for this year..I am thinking to invest in ELSS tax saving plan in LUMP SUM mode..Should I invest in one fund or distribute in other funds..My options..Axis long term, Franklin, birla sunlife..Please help me in this as March is approaching..Thanks
Regards
Over lump sum, i will prefer SIP. You may invest in 2-3 funds.
Hi Nitin,
I am planning on investing Rs.20k in Religare Invesco Tax Plan for this FY. Is it a good choice as per your experience ?
Regards,
Sandeepan.
It’s a good fund to invest.
Hi Nitin, should I declare my ELSS worth 1.5 lacs in section 80C if my PF already consumes 1.5 lacs? If yes, what additional benefit will i have?
There is no additional benefit. The max limit u/s 80C is 1.5 lac.
Hi Nithin,
I am investing 2k/mnth from june 2014 in ‘SBI Magnum Tax Gain Scheme (G)’ under section 80C.
By reading your article, i am bit confused now that you have mentioned this
“I invested Rs 50k every year for 3 years in ELSS in Jan 2004, Jan 2005 and Jan 2006. I opted for growth option and after that i am not at all worried about tax investment. My investment of Jan 2004 matured in Jan 2007 and after redemption, i re-invested 50k in ELSS & balance amount booked as profit. Amount redeemed was tax free and re-investment of same made me eligible for tax benefit under section 80C. Similarly investment of Jan 2005 and Jan 2006 matured in Jan 2008 & Jan 2009 respectively which i re-invested in ELSS same year thus received tax benefits.”
Can you enlighten a little bit more on that point?
Thanks in Advance.
In short, once you invested 1.5L i.e. 50k each for three subsequent years, you can keep rotating this money and avail tax deduction u/s 80C without any further investment from your end.
Hi,
For this fiscal year do I need to invest in ELSS within this month end to get tax exemption ?
It depends on your tax status, current investments u/s 80C etc.
Nitin sir, request clarity on investing in ELSS, whether lump sum mode or SIP mode.
In the article, you advise sunaina shama lump sum mode. For Androidrooter you recommend SIP mode.
Pls help to clarify, really helps Nitin Sir.
regards MRM
There is no hard and fast rule. The answer depends on case to case basis.
Thanks Nitin sir, yes I understand it varies on case to case basis.
i am investing 3 lac in axis long term equity growth in two names. Is it good? How much should i expect the rate of return?
You should diversify your investment in 3-4 funds to hedge risk. The equity returns cannot be predicted. All depends on FII’s :)
Can u name me the elss.
BNP Paribas Long Term Equity Fund, Birla Sun Life Tax Plan or DSP BlackRock Tax Saver Fund
i m senior citizan.i have ppf a/c my son is employye in co. can he deposit rs.1.5 lac in my ppf account and get benifit under 80c…please guide
No
Hello Nithin Sir,
Say if i start a monthly SIP investment in ELSS, how can i submit the document for that year?! should i have to upload all 12 months statement or the last month statement alone which indicates total amount invested is enough?. Plz help.
You can ask for financial year statement from the fund house.
state bank sold me SBI life Smart Wealth Builder plan in Dec 2015. It’s 50k annually. Am thinking to surrender this and invest 50k in PPF or ELSS with decent gains in 3yr. I got remaining 1lakh taken care towards LIC and PF. You thoughts pls would be highly appreciated.
Regards,
KVenkat
I am not a certified financial planner therefore cannot suggest. You may go through my posts in Personal Finance section for general opinion.
thank you for replying Nitin.
I want to open new elss account. In Which bank should I open elss account?
Any charges for opening and maintenance?
Equity Linked Saving Schemes is not offered by banks. It is a Mutual Fund Scheme. You can invest in Equity Linked Saving Scheme offered by the fund house. Fund house charge/adjust annual expense ratio from the corpus.
psot investing in ELSS fund how can I show it for availing tax exemption? what documents I need to have and whom should I contact them for?
You can submit the ELSS account statement for FY. Either download online or call the helpline of fund house for physical statement.
Thank you very much. :)
Does ELSS mutual fund being regular or growth affect the performance [ other than fund expense /management fees]??
Since I wanted to invest by myself I was planning to go for Direct
fund. Please suggest which would be better regular or direct? or does it differ for each mutual fund?
No. The investment philosophy remains the same. Be assured that the returns of direct fund will be higher but difference will depend on expenses and other factors. Personally i will not prefer direct fund. Please check my following post
https://www.nitinbhatia.in/personal-finance/avoid-direct-plan-of-mutual-fund/
If I invest X amount under ELSS(< INR 150,000), can it be shown for 3 years duration under 80 C repeatedly or do I have to do it again next year ?
You can claim tax benefit only in the year of investment. For next financial year, you again need to invest X amount to claim tax benefits.
Thanks for replying !
Dearest Nitin ji or any one ….
From last 5 days i was searching on investment in tax saver mutual funds and finalised and invested myself 15 k in DSP tax saver..15k in Birla sunlife 96 relief and 10k in Kotak tax saver..all under ELSS… Invested 50 k in kotak opportunity ulip…and 60 in ppf…. Completing 1.5lakh of investment….now a CA..my brother’s friend came and gave me a shock that out of 40 k invested in mutual funds only 20k will come under rebate…he said you either take a ulip or make and FD of 5years or invest in PPF…as 1.10 of ppf and ulip will get consideration under 80 c …20 k of mutual funds will come under different section…pls suggest ..is he right or misunderstood for RGESS…or should i have to invest more 40k…in PPF…pls confirm
Prima facie he is misleading you.
If I invest 2000 INR in a ELSS through monthly SIP, will I get tax-exemption (under Section 80C) for this entire amount of 24000 INR for the financial year?
Yes. You can claim tax exemption of Rs 24k.
Sir i started invested 3000 rs in ELSS SIP DSP Blackrock Tax Saver fund from may 2017 whether it will eligible for tax exemption from May 17 to Mar 18 only so just 11 months 33000 rs or eligible for full 36000 rs for the financial year .
You can claim tax deduction only for the amount invested i.e. Rs 33,000.
Thank u sir