Although most people look for tax-saving opportunities at the end of the financial calendar year, it is beneficial to plan ahead. Many investments can offer tax benefits as per Section 80C, Income Tax Act 1961. Equity Linked Savings Scheme, or ELSS, offers tax benefits and market-linked returns.
ELSS funds, which are equity mutual funds, invest primarily in equity and equity-related instrument. Two factors distinguish ELSS Funds from other equity funds.
Remember that the tax deduction amount applies to all investments made under Section 80C, and not just for ELSS.
Here's a list of the top five tax-saving funds in 2020.
|FUND NAME||1Y||3Y||AUM (INCR)|
|Quant Fund||Quant Tax Plan Fund||86.49%||33.6%||Rs327.45|
|Mirae Asset||Mirae Asset Tax Fund||62.92%||22.17%||Rs.8739.30|
|Bank Of India||BOI AXA tax advantage fund||68.08%||22.16%||Rs 490.17|
|Canara Robeco Mutual Funds||Canara Robeco Equity Tax Saver||63.72%||20.94%||Rs 2469.50|
|DSP Mutual Funds||DSP Tax Saver Fund||65.0%||19.72%||Rs9333.11|
All funds mentioned are a moderately high risk on the riskometer. S&P BSE 200 Tri is the benchmark. This list does not constitute a recommendation. It is a compilation of the best performing ELSS funds, based on past performance.
It is important to fully understand the objectives, risk exposure, investment strategy, and other aspects of an ELSS fund before you invest in it. Your money will be directly exposed to stock markets. Before investing in an ELSS fund, here are some things you should remember:
Long-term consistency in performance
It is important to have consistent performance over a longer period of time. You should not let market volatility affect your decision to invest. Don't compare your long-term investment goals with other investors. You can start from five years, but it can increase depending on your goals.
Both financial and non-financial metrics
You can view the charges and financial ratios of ELSS funds (such as P/E, Sharpe ratio, P/B), and their charges. ), category averages, risk-adjusted returns, and holdings. But remember to compare them with another ELSS fund. Comparing equity funds of other categories with each other is misleading.
Fund House and Fund Manager
A mutual fund's success is dependent on its fund manager. The same applies to ELSS funds. You should research the fund manager before you buy it. Find out how they have handled similar funds over different market cycles and what their past performance has been. This will give you a good idea of the fund manager's decision-making abilities and how he/she manages market volatility.
It is important to assess the reputation of the fund house in the market.
You can either invest in ELSS funds as a lump sum, or as a SIP. Lump-sum investments are when you invest a larger amount in one lump sum, while SIP allows for you to invest each month. Depending on the AMC or the fund, you can invest as little as Rs 500 per month. No matter which option you choose to use, units will be assigned to you with a three-year lock-in period. This means that you can't withdraw funds within the three-year investment period.
Ramesh invested Rs 10 Lakh in an ELSS fund, which had a NAV Rs 10. The units that were allotted to Ramesh include Rs 10 lakh/10 = 1 million units. These units cannot be redeemed after September 1, 2023.
Each SIP installment has a lock-in period.
Ramesh made Rs 15,000 monthly through a SIP in ELSS funds.
The 2nd April 2020 was the date of the first investment. Let's say that the NAV was Rs 10 In April 2020, 1,500 units were credited.
The second investment was made at Rs 15. Units credited ere (15,000/15), = 1000 units
The first 1500 units may be redeemed by 2 April 2023. The 1000 units purchased in May 2020 are only eligible for redemption on/after May 2, 2023.
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