Most of the millennials understand the importance of saving. And the only way to save is to invest rightly. Apart from our regular RD’s and FD’s there are other ways to invest where you can expect high returns. Yes! ELSS (Equity Linked Saving Scheme) Mutual funds are now considered as one of the top investment options by industry maestros. But, many people are still not clear with the difference between these two. One might feel that ELSS and mutual funds are different schemes. However, the fact is that Equity Linked Saving Scheme (ELSS) is a type of Mutual Fund where investments are made in Equity. And the only difference between the two is that ELSS is tax saving and Mutual fund is not. In case you are still not clear about the difference and benefit between the two read this article to know more in detail.
What is Mutual Fund?
Mutual Fund is an investment scheme where money is pooled in by a large number of people and is managed by professional fund managers. The pooled money is then invested in equities, money market instruments, equities and bonds. Here, each investor owns units which can be represented as a portion of the holdings of the fund. And if there are any gains from the investment gets equally distributed amongst the investors after deducting expenses. This is done by calculating a scheme’s “Net Asset Value or NAV.
What is an ELSS?
ELSS stands for Equity Linked Saving Scheme. It is a type of Mutual Fund which provides investors with a tax saving benefit under section 80C of the Income Tax Act, 1961. These are mostly diversified funds which get invested in quality large-cap and also selectively into few high quality matured mid-cap stocks. Under ELSS you can avail tax exemptions up to INR. 1.5 lakh.
Although there is not much difference between ELSS and Mutual funds. However the two minor ones are listed below:
1) Lock-in period
There is a lock-in period of 3 years in all ELSS schemes and pre-mature withdrawals are not allowed before the lock-in period is complete. However, in case of Mutual funds there is no lock-in period and you can withdraw your investment at any point.
2) Tax Benefits
You can avail a tax benefit under ELSS of up to INR. 1, 50, 000 lakh under section 80C of the Income Tax Act 1961. Although, under Mutual funds there are no such exemptions available.
Since we now know the major key difference between ELSS Mutual funds, it is vital to know the reasons to opt for ELSS Mutual Funds.
1) Provides high level of transparency
With ELSS you can track your daily portfolio. And since you have the transparency to look into your profile it can help you make better decisions if needed to increase your ROI. Also, remember all the ELSS schemes offer this level of transparency.
2) Ease of transaction
Only ELSS and life insurance are those tax saving transactions that can be made online. You can get them from the comfort of your home or while at work. However, other options like PPF or NSC will require physically stand in the queue to invest.
3) Choice between Dividend and Growth Option
With regards to tax saving investments like PPF’s, NSC’s and FD’s you do not get the option to access your deposit during the lock-in period. But with ELSS an investor has the choice of opting for the dividend option. And when fund declares a dividend, the payout is also tax free.
Best ELSS Mutual Funds
Following are the top 10 ELSS Mutual funds for the year 2018:
- Axis long term equity fund
- Franklin India Tax shield
- DSP Blackrock Tax Saver Fund
- Reliance Tax Saver Fund
- ICICI Prudential Long term Equity Fund
- Birla Sunlife Tax Relief 96
- Invesco India Tax Plan
- Principal Tax savings
- Tata India Tax Savings
Therefore, now it is clear that the Equity Linked Saving Scheme (ELSS) is a type of Mutual Fund and can be considered as one of the best investment options. So, if you are keen on making some investments, ELSS mutual fund is the finest option for you.