Equity Linked Saving Scheme - Mutual Fund (ELSS) is a financial instrument provided by Mutual Fund companies which
invest in equity and equity related products whose returns based on performance of equity market (in simple terms stock market). ELSS is suitable for investors having a high risk profile as returns in ELSS fluctuate depending upon the equity market and there are no fixed returns as other products like Fixed Deposit(FD), PPF account etc. ELSS has locking period of 3 years. Investor can not exist from these funds before 3 years.
Customer can buy ELSS mutual fund through agent or online (if they have demat account and trading account). Mutual fund company declares NAV (Net Asset Value) for each fund on daily working days to stock exchanges. Net Asset Value is the market value of the assets of the scheme minus its liabilities (which includes salary expense, operation and other expenses) of the mutual fund scheme. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. NAV will vary based on performance of their portfolio (purchased by fund managers). Mutual fund companies has their Fund Managers who has knowledge of equity and other products; they have very good analysis & research tools. Investors can find NAV for various funds on AMFI site, select category as ELSS.
Based on NAV, customer will get number of units (for ex. if customer wants to invest 10000/- in X ELSS scheme and NAV for that fund is 10.34/- then customer will get 10000/10.34 = 967.118 units of that fund).
There are three kind of investment options for mutual fund as below:
Growth option: In growth option income earned by the fund is not distributed to unit holders, Investor do not earn any dividend during the time it holds the fund. Any income/profit earned by the fund increases the NAV of the fund and vice versa. Whenever the investor sells its holdings he will realize long term capital gain/loss.
Dividend option: In this option the fund distributes income earned by the fund to the investors as dividends. The date of distribution is declared by the fund, however if the fund has negative income it will not distribute any dividend. Any dividend received by the investor is not liable for tax in the hands of investors.
Dividend reinvestment option: If the investors choose this option the dividends declared by the fund are reinvested. For example an investor is holding 10000 units of a fund and the fund declares dividend @ 1.5 per unit, the total dividend of 15000 (10000*1.5) will be reinvested on behalf of the investor as a fresh purchase. The investor can claim deductions to the tune of dividend received which is Rs 15000 in this case.
Period: There are 3 years of locking period for ELSS mutual fund, before 3 years investor can not sell their units. After that tenure its upto customer / investor.
Return Rate: ELSS returns depends on performance of the fund which is purely based on equity market. There are so many mutual fund companies in India so investor can study / view the past performance of these companies and based on that they can invest, but again past performance will not guaranty in future. Nobody can predict, sometimes it gives very good returns sometimes it gives negative / average return.
Safety: ELSS mutual funds invest in equity market, so again it is not safe as per equity market guidelines. Its not insured by any government body or some organization.
Liquidity: Money invested in ELSS is liquidated easily by filling the redemption form and submit it to agent / mutual fund office. If investor bought it online then they can redeem it only, it takes few seconds and clicks. Investor will get money directly in their account / cheque from mutual fund company.
Tax exemption: Money invested in ELSS is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac. Individual can take this tax exemption for only one year in which money invested not for all 3 years. In case of Dividend reinvestment option investor can take benefit in consecutive years if any dividend reinvested automatically.
Customer can buy ELSS mutual fund through agent or online (if they have demat account and trading account). Mutual fund company declares NAV (Net Asset Value) for each fund on daily working days to stock exchanges. Net Asset Value is the market value of the assets of the scheme minus its liabilities (which includes salary expense, operation and other expenses) of the mutual fund scheme. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. NAV will vary based on performance of their portfolio (purchased by fund managers). Mutual fund companies has their Fund Managers who has knowledge of equity and other products; they have very good analysis & research tools. Investors can find NAV for various funds on AMFI site, select category as ELSS.
Based on NAV, customer will get number of units (for ex. if customer wants to invest 10000/- in X ELSS scheme and NAV for that fund is 10.34/- then customer will get 10000/10.34 = 967.118 units of that fund).
There are three kind of investment options for mutual fund as below:
Growth option: In growth option income earned by the fund is not distributed to unit holders, Investor do not earn any dividend during the time it holds the fund. Any income/profit earned by the fund increases the NAV of the fund and vice versa. Whenever the investor sells its holdings he will realize long term capital gain/loss.
Dividend option: In this option the fund distributes income earned by the fund to the investors as dividends. The date of distribution is declared by the fund, however if the fund has negative income it will not distribute any dividend. Any dividend received by the investor is not liable for tax in the hands of investors.
Dividend reinvestment option: If the investors choose this option the dividends declared by the fund are reinvested. For example an investor is holding 10000 units of a fund and the fund declares dividend @ 1.5 per unit, the total dividend of 15000 (10000*1.5) will be reinvested on behalf of the investor as a fresh purchase. The investor can claim deductions to the tune of dividend received which is Rs 15000 in this case.
Period: There are 3 years of locking period for ELSS mutual fund, before 3 years investor can not sell their units. After that tenure its upto customer / investor.
Return Rate: ELSS returns depends on performance of the fund which is purely based on equity market. There are so many mutual fund companies in India so investor can study / view the past performance of these companies and based on that they can invest, but again past performance will not guaranty in future. Nobody can predict, sometimes it gives very good returns sometimes it gives negative / average return.
Safety: ELSS mutual funds invest in equity market, so again it is not safe as per equity market guidelines. Its not insured by any government body or some organization.
Liquidity: Money invested in ELSS is liquidated easily by filling the redemption form and submit it to agent / mutual fund office. If investor bought it online then they can redeem it only, it takes few seconds and clicks. Investor will get money directly in their account / cheque from mutual fund company.
Tax exemption: Money invested in ELSS is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac. Individual can take this tax exemption for only one year in which money invested not for all 3 years. In case of Dividend reinvestment option investor can take benefit in consecutive years if any dividend reinvested automatically.
Tax on Return (Dividend / Long term Capital Gain): Dividend or long term capital gain earned by ELSS units is taxfree. Dividend
On AMFI site, Investor can find list of mutual fund companies which are operated in India: Registered Mutual Fund Companies in India
Below are few funds:
SBI Tax Advantage Fund - Series I
SBI Tax Advantage Fund - Series II
SBI Magnum Taxgain Scheme 1993
Principal Tax Saver / Savings Fund
Reliance Tax Saver (ELSS) Fund
Reliance Equity Linked Saving Fund Series 1
HDFC Tax Saver
Birla Sun Life Tax Relief 96
Birla Sun Life Tax Plan
Kotak Tax Saver
UTI Equity Tax Savings Plan
IDFC Tax Advantage (ELSS) Fund
Sundaram Tax Saver
L&T Tax Advantage Fund
L&T Tax Saver Fund
Canara Robeco Equity Tax Saver
ICICI Prudential Tax Plan
BOI AXA Tax Advantage Fund
Baroda Pioneer ELSS 96
TATA Tax Saving Fund
Franklin India Taxshield
Investor can find the performance of ELSS by various mutual fund companies on financial portals / sites as below:
ELSS on Moneycontrol
ELSS on Economic Times
ELSS on Rediff Money
