ELSS: The Best Investment Instrument to Save Tax under Section 80C

Saving tax can be a tricky business. With so many options to choose from- ULIPs, endowment plans, PPF NSC, FD, ELSS, etc. a common investor like you may feel confused when it comes to saving tax. Instead of just being influenced by your peers, you should consider adopting a pragmatic approach towards tax saving under section 80C.

You might have heard of ELSS in the past and might have wondered what it is actually and why it is being called the best tax saving investment. Let us share our views on investing in an Equity Linked Saving Scheme (ELSS) and how it is better than other tax saving instruments.

What is ELSS & how is it better?
ELSS is a tax saving instrument qualified for exemption under Sec 80C and is a diversified equity mutual fund that offers dual benefits to investors. At one end, it offers tax saving benefit and on the other, it promises greater growth of invested amount than other tax saving instruments. To give you an idea about the advantages of investing in ELSS further, let’s compare it with other tax saving instruments.

ELSS, PPF, NSC & FD: A Comparative Overview

Lock in (Tenure) 3 Years 15 Years 5 Years (Minimum) 5 Years
Returns Market Linked (Generally 12-15%) 7.8% Compounded Annually 7.8% Compounded Half Yearly 7.5% p.a. (highest by any bank)
Minimum Investment INR 500/- INR 500/- INR 100/- Varies bank to bank
Maximum Investment No Limit INR 1.5 Lakh per year NA No Limit

Why ELSS has an edge over other tax saving instruments?

  • Highest rate of return
    Compared to other tax saving schemes, ELSS offers the highest rate of return. This helps an investor not only in saving tax but also in long-term wealth creation. As ELSS invests in equity, long-term investments can easily attract an annualized return of 12-15%. When compared to other investment options, it is way higher and also beats current rate of inflation, promising wealth creation in the long term.
  • Shortest lock-in period
    ELSS has the shortest lock-in period when compared to other investment options like PPF, NSC and Bank FD. While PPF has a lock-in of 15 years and NSC mature in 5 years, ELSS allow an investor to withdraw their investment in just 3 years. Also, other tax saving instruments such as ULIPs & NPS too have a lock-in period of more than ELSS funds.
  • Tax-free dividend & maturity
    As ELSS comes under EEE category in taxation, dividend income and maturity proceeds are completely tax-free in ELSS. Income from other tax saving instruments except PPF are taxed according to either tax slabs or at maturity. This makes ELSS a better and much more rewarding option for tax saving and wealth creation in the long term.
  • Promotes financial discipline & develops investment habit
    ELSS is way more flexible in terms of investment schedule and one can plan to invest in ELSS using Systematic Investment Plan (SIP). One can invest regularly at periodic intervals in an ELSS scheme helping an investor dodge liquidity crunch at the end of a financial year. As investment in ELSS through SIP is spread over a specific time frame, it helps an investor in taking benefit of cost averaging during bearish market phases. Also, investment in ELSS can be automated and this periodic schedule helps in the development of regular investment habit- a prerequisite for long-term wealth creation.

Facts speak for themselves and when we collated the most valuable facts related to all the major tax saving instruments available in India, we found out – ELSS is the clear winner in this race. So, why not to go with best invest instrument ELSS for tax savings.

Park your investments in ELSS funds and avail dual advantages of capital appreciation and tax saving at the same time.

If you are confused about which ELSS scheme will be the best for your investment appetite, consult our MFundz experts who will help you in making the right decision.


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