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What are ELSS Funds?
Equity Linked Savings Scheme (ELSS) funds are tax-saving mutual funds that allow investors to grow wealth while saving on income tax. ELSS mutual funds are best known for their tax benefits under Section 80C of the Income Tax Act 1961. Further, the advantages of investing in equity securities are an added bonus. These open-ended equity mutual funds come with a statutory lock-in of 3 years.
Why consider investing in ELSS funds?
Here are five key reasons why you can opt to invest in ELSS funds/tax saver mutual funds:
Here are five key reasons why one should invest in ELSS funds, which is also commonly referred to as tax saver mutual funds:
1. Tax Benefits :ELSS is one of the available investment options under Section 80C of the Income Tax Act, which allows exemption of up to ₹1.5 lakh in the financial year. You may claim exemption on the amount you invest during the period, subject to ₹1.5 lakhs ceiling limit for all eligible payments/investments taken together. You may invest in a lump sum or through SIP in ELSS funds to avail of the tax benefit.
2. Lock-in period :Such mutual fund schemes are subject to a 3-year lock-in period. As such, you cannot redeem the investments in ELSS units before three years from the investment date. If you are investing through an SIP, such a lock-in period will be calculated from the actual investment date for each instalment and not from the date of SIP registration.
3. Taxation :Considering the 3-year lock-in period, gains from ELSS funds are classified as Long-Term Capital Gains (LTCG). The gains from such funds are taxed at 10% (plus applicable cess and surcharge) without any indexation benefit. Since no indexation benefit is allowed to the investors, you may directly deduct the redemption value from the cost of units redeemed to calculate the gains. Further, you can also avail of ₹1 lakh yearly total exemption in respect of LTCG from equity shares and equity funds, including ELSS.
4. No Auto Redemption :Unlike most eligible investments under Section 80C, ELSS investments are not redeemed at the end of the lock-in period. You may stay invested in such funds even beyond the 3-year lock-in period. This allows you to link such investments with your long-term financial goals. This is how ELSS enables investors to club their tax savings and financial plans together.
5. Returns linked to Underlying Investments :ELSS funds provide returns as per the securities' performance in the underlying portfolio.
Features of ELSS
- a. ELSS funds invest 80% of their portfolio in equity.
- b. They have a statutory lock-in period of 3 years, which is the shortest among all tax-saving instruments.
- c. They provide a dual benefit of capital appreciation from equity investments and tax savings.
- d. ELSS Mutual Funds do not have any entry or exit load.
UTI LTEF is an Equity Linked Saving Scheme (ELSS) providing twin benefits of good return potential (by investing in equity securities) and savings on taxes. In addition, the fund provides for portfolio diversification through its investment approach of investing across the market capitalisation spectrum. Therefore, UTI LTEF is suitable for investors looking for long-term wealth creation by investing predominantly in equity securities.
The asset allocation of UTI LTEF is as follows:
- Equity & equity-related instruments: Min 80% – Max 100% (medium to high risk)
- Debt (including securitised debt): Min 0% – Max 20% (low to medium risk)
With a distinct product positioning in terms of investment objective & asset allocation, ELSS provides an opportunity to meet various investment needs with a single offering. It would help you save taxes and create wealth together. Get in touch with a UTI Financial Advisor to know more today.
- Invested amount is the amount entered for either Monthly SIP and Lumpsum for the duration selected
- For lumpsum and monthly SIP investments returns are compounded annualized. 1 Year is assumed as 365 days.
- Dividends declared from benchmark's constituents isn't taken into account when comparing with investment in scheme's dividend plans.
- Worth of investment: Performance is compared against the latest benchmark of the scheme irrespective of the date of change of scheme's benchmark, if any.
- The start day for SIP investments is considered as 1st of every month
- For the purpose of NAV date applicability, if the investment date happens to be a non-business day, next business day's NAV is applied.
- Gold prices are available post 29 JAN, 2005 are based on daily closing values on MCX.
- PPF interest rate is assumed at 8.7% p.a. interest received is compounded monthly for the returns illustration in the charts.
- Dividend payouts reinvestment in scheme is not considered for the purpose of calculation of returns and graphical representation.
|This Scheme||BSE 100||Fixed Deposit||Gold||PPF|
Frequently Asked Questions About ELSS
What is the lock-in period in ELSS?
ELSS funds are subject to a lock-in period of three years. In other words, investors cannot redeem their
investments for three years starting from the investment date. This makes ELSS one of the attractive investment
options under Section 80C, as it carries one of the lowest lock-in periods among all eligible investment options.
Further, such a lock-in period of three years is only applicable for voluntary redemption. It does not mean the
investments will be redeemed automatically at the end of the three years.
If investors opt for a Systematic Investment Plan (SIP), the ELSS lock-in period of three years is calculated separately for the investment and not from SIP registration itself. One should note that the lock-in period is inherent to the ELSS, irrespective of whether the investor has availed tax benefits for such investments or not. The lock-in period helps investors resist the temptation to redeem their assets during a market downturn which is counterproductive.
What are the tax benefits of ELSS?
ELSS are eligible for income tax exemption under Section 80C of the Indian Income Tax Act. Therefore, under this
Section, you can avail ₹1.5 lakh maximum deduction for your ELSS investment. Please note that the tax benefit from
ELSS is to be taken along with all the eligible tax saving options under Section 80C and not separately as an
exclusive deduction of ₹1.5 lakhs.
Further, taxpayers who have opted for the new tax regime cannot avail of any tax benefits under Section 80C. Hence, such taxpayers may not get any tax deductions for ELSS investment.
Moreover, the investment in ELSS units must be mandatorily held for a minimum of three years, being the lock-in period. The gains arising from investment in such funds will be classified as Long-Term Capital Gains (LTCG). Such gains are taxed at a special rate of 10% (plus cess and surcharge as applicable) irrespective of the slab rates applicable to the investors.
Additionally, the gains up to ₹1 lakh per year from equity shares and equity funds are exempt from tax, thereby making returns from such funds tax effective.
How much return will I get from Equity Linked Savings Scheme (ELSS)?
As per the investment mandate under the ELSS category of funds, at least 80% of the fund's total assets must be
invested in equity & equity-related securities. As such, ELSS returns are market-linked and depend on the
investment portfolio's performance, as against most of the other investment options under Section 80C, which may
provide guaranteed but only reasonable returns on the investment.
With ELSS investments, the investors get equipped with the potential of better returns, as equities may be volatile over the short term. But such funds generally perform better over the long term. This works well for investors considering ELSS investments in their financial plans with long-term goals.
Who should invest in ELSS?
Individuals looking for ways to avail of tax benefits under Section 80C of the Income Tax Act and reduce their
annual tax liability may prefer investing in ELSS. However, apart from tax-saving, investors can use ELSS for
wealth creation, as they can enjoy the flexibility of continuing with their ELSS investments even after the
This contrasts with other eligible investment options under Section 80C, which are liquidated automatically at the end of the specified tenor. The ELSS investments are not redeemed automatically after three years, and the investors must make a specific redemption request to liquidate their investments in ELSS.
As such, you may invest in ELSS to accomplish financial goals for longer than three years. Holding investments for extended periods may aid investors in wealth creation and achieving financial goals.
What are the different ways I can invest in ELSS?
You can invest in equity funds through lump sum or SIP. While ELSS lumpsum investment represents a one-time
investment, SIP implies periodical investments made automatically by deducting the amount from the bank account
and investing the amount in the specified mutual fund scheme.
Since an ELSS SIP eliminates timing bias and supports tax-saving goals, it is a preferred option among many investors. It allows investments to be spread across the year, instead of pressurising cash flows at year-end.
To invest, you can submit the application form physically at any official Points of Acceptance (POA) or online, i.e., through the website/mobile apps of the mutual fund house or Registrar and Transfer Agent (R&TA). In addition, in the case of SIP investing, you must also register the Mutual Fund Biller in the bank's net banking portal to enable regular investments through the bank account.
SIP is a feature offered for disciplined investment of a certain amount on a pre-decided date in a specific mutual
fund scheme, regularly over a period of time.
The tax provisions mentioned are updated as per the Union Budget 2022 presented in the Parliament in February
2022. The tax rates for capital gains will be as per the tax laws applicable on the date of redemption/ sale and
not on the investment date.
Equity Linked Savings Scheme (ELSS) is an open-ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit. Minimum investment in equity & equity related instruments - 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance). As per the present tax laws, eligible investors (Individual/HUF) are entitled to deduction from their gross total income, of the amount invested in equity linked saving scheme (ELSS) upto Rs. 1,50,000/- (along with other prescribed investments) under Section 80C of the Income Tax Act, 1961. Subject to prevailing tax laws.