If you are looking for substantial returns from mutual fund investments while also saving on taxes, this information is for you. While there are various types of mutual funds in the market—each with different investment approaches and return profiles—there is a specific category that allows you to save taxes and earn attractive profits simultaneously. Let us explore this tax-saving fund today.

What is this special type of fund called?

This tax-saving fund is known as ELSS (Equity Linked Savings Scheme). It is not the name of a specific fund but rather a category of mutual funds. These funds primarily invest in the stock market and related companies. Compared to other Section 80C options—such as PPF (15-year tenure) and tax-saving FDs (5-year tenure)—ELSS has the shortest lock-in period of just three years.

Regarding tax deductions, under the Old Tax Regime, you can claim a deduction of up to ₹1.50 lakh per financial year under Section 80C for investments made in these schemes. Unlike other tax-saving instruments, ELSS invests your money directly in the stock market; this enables it to beat inflation and potentially generate impressive returns.

How much should you invest?

You can invest in these funds according to your convenience. You have the option to invest via a monthly SIP (Systematic Investment Plan) or make a lump-sum investment if you have a larger amount available. Since these funds have a three-year lock-in period, there is no exit load charged when you sell your units after this duration.

Tax and Return Details for ELSS

Long-Term Capital Gains (LTCG): If you sell units held for more than one year, any profit exceeding ₹1 lakh is taxed at a rate of 10%. Short-Term Capital Gain (STCG): Since ELSS funds have a mandatory lock-in period of three years, the question of short-term capital gains tax does not arise, as the money cannot be withdrawn before the completion of this period.

No TDS: No TDS (Tax Deducted at Source) is deducted upon the redemption of ELSS units.

What kind of returns do ELSS funds offer?

Looking at data from the past few years, several ELSS funds have delivered impressive performance. For instance:

Motilal Oswal ELSS Tax Fund: Annual return of approximately 23.84%
ITI ELSS Tax Saver Fund: Return of approximately 19.45%
WhiteOak Capital ELSS Tax Fund: Return of approximately 18.63%
HSBC ELSS Tax Saver Fund: Return of approximately 18.34%
JM ELSS Tax Saver Fund: Return of approximately 18.27%

PC Social Media