ELSS (Equity Linked Saving Scheme)- Tax Saving Mutual Fund
I came to know about ELSS during my stay in Mumbai and from my experience I have regarded ELSS as very important tax saving scheme, primarily because of its sheer tax saving and benefit of equity in long term, as its proved fact that Equity as an asset class leads in terms of long term investment and can significantly beat inflation.
Since all the tax saving scheme comes with fixed maturity or lock in period e.g. tax saving fixed deposit are mostly for 5 years, national saving certificate are of 6 years, Kishan Vikash patra are of 8 years, PPF are of 15 years etc, so if compare all tax saving scheme you will find only ELSS has least lock in period of 3 years.
When comparing with other tax saving scheme, no one provide dividend except ELSS. This can be really useful if you want to take tax benefit and also want some of your principal back.
I remember in 2007 many of my friends invested in Birla Sun Life 96 ELSS tax saving scheme and at that time this fund declares big dividend and all my friends got almost there 30-40% money back within one month.
Now days declaring dividend by ELSS tax saving scheme during Jan-march becomes trends to attract more and more investor during peak time of tax saving period. Also most of the ELSS schemes have been long enough and they have witnessed several Market rise and fall and
When one assess performance of any fund this is most important factor.
Also no tax saving scheme provides facility like Systematic Investment Plan (SIP) which ELSS does through which one can invest a small amount every month as compared to lump sump investment and get tax saving.
Though its completely personal choice where to invest for tax saving, ELSS remains favorite among many of investor because of its unique offerings along with tax saving benefit.
ELSS tax saving scheme – Mutual Fund
So for summarizing here are the main benefits of ELSS tax saving scheme based on my experience.
1. Least lock in period of 3 years compare to other tax saving instrument.
2. Benefit of Equity investment for long term, can beat inflation and give decent returns (20-30% approx).
3. Can get significant money back via dividend if invest at right fund and right time, mainly during peak tax saving period of Jan-march also dividend is provided over the lock in period.
4. Easily accessible your can track performance on websites for these funds.
5. Can choose SIT Systematic Investment plan.
though this has several benefits over other tax saving scheme it does have some disadvantage also e.g. Risk is high because all your investment is on equity , so could result in principal loss in case of market crash.
But taking benefits ELSS into account its stands out as one the best among tax saving scheme. Almost all the banks like HDFC, Kotak Mahindra, SBI , ICICI, Morgan Stanly, Goldman Sachs and many other NBFC (Non Banking Financial corporation) like Reliance capital are offering tax saving mutual fund scheme also known as ELSS. My favorite Birla Sunlife Tax saving scheme its from Birla Mutual fund and its very old, good part of this tax saving mutual fund is that it declares frequent dividend which means despite of 3 years locking period in tax saving mutual fund you will get your money coming back to you.