Top Equity Linked Savings Scheme (ELSS) in India

Equity linked saving scheme (ELSS) is a tax saver mutual fund. It allows us to claim income tax deductions u/s 80C.

Equity linked saving scheme (ELSS) are basically diversified equity fund which also allows us to save tax. A typical equity linked savings scheme (ELSS) will have its portfolio consisting of 90-95% equity (diversified).

So it is only obvious that the possible returns from ELSS will be close to the performance of the index (averaged market returns).

Unlike traditional diversified fund, ELSS has lock-in period of three years.

ELSS supports one time investment. It means, if you are buying ELSS today, then the fund will be available only after 3 years. One can redeem investment only after 3 years lock-in period.

In case you investing through SIP then each of your units should wait for 3 years each and then it can be redeemed.

One must remember that ELSS schemes are long term investment vehicle. So what means by long term? It means, the money must stay invested for at least 7 years. If you desire to earn better returns from ELSS, then even longer holding time is recommended.

People who desire to invest money wherein they desire to give holding time of only <3 years, then ELSS options must be avoided.

Investment date Redemption Date
1-Jan-13 1-Jan-16
1-Feb-13 1-Feb-16
1-Mar-13 1-Mar-16

As the lock-in period for ELSS is 3 years, there are people who become hasty and withdraw funds immediately after 3 years. But this is not a right investment approach.

One must allow a minimum of 7 years time to ELSS to show good returns. This is in fact a rule for all type of equity linked investment plans. Staying invested for long term (>7 years) can give phenomenal returns.

Frequent redemption in ELSS must be avoided under all circumstances.

What one must do with ELSS after lock-in period is over?

Reviewing a ELSS scheme too soon is not advisable. Means, let the lock-in period of 3 years be over first. Only after that the ELSS should be put to scrutiny. In case the ELSS has performed well in the last 3 years, preferable options will be to allow the invested money to remain parked for another 3 years and then review.

In case the ELSS scheme has not performed well in these 3 years, one shall consider switching the funds. This will increase the possibility to earn better returns in future.

If there is not immediate necessity, money parked in ELSS should remain untouched. Anyways, for the first 3 years, the money invested in ELSS is locked. After expiry of 3 years, the scheme becomes open ended. Here the person has options to withdraw all money at a time, or in a phased manner.

Why one shall consider ELSS over other Traditional 80C Tax Saving Options?

Equity Linked Savings scheme (ELSS) has much lower lock-in period as compared to other tax saving options. Here the lock-in period if just 3 years. Compare this with PPF where lock-in period if 15 years. National Saving certificate has lock-in period of 6 years. Moreover, as ELSS is an equity linked scheme it has potential to give much higher long term returns as compares to traditional tax saving options under section 80C.

A point must be considered that as ELSS is a equity linked option, it means that investment is risky. In short term horizon there will be big volatility of its market price. So a person who wants to buy ELSS must keep in mind that it is not going to give a assured returns like other tax saving options.

People who are below 40 years of age, must have a good portion of 80C consumed by ELSS. Earlier people used to utilize 80C with LIC etc. But now with the options of ELSS being available, this facility must be used by all young people.

What type of financial goals must be linked with ELSS investment?

ELSS being a equity linked investment plan, long term goals must be linked with this investment. I have personally used ELSS to fund my following long term goals:

(a) Retirement linked investments (holding time 20 years).
(b) Future education of child (holding period 15 years).
(c) Future financial requirement of child (holding period 25 years).
(d) Purchase of second home (holding time 7 years).

Top Ranked Equity Linked Savings Scheme (ELSS) in India

(Updated as on July’2017)

SL Equity Linked Savings Plan (ELSS) Launch Date Return % (3Y) Return% (5Y) Return% (10Y) Expense Ratio (%) Net Asset (Rs.Cr.)
1 Birla Sun Life Tax Relief 96 Mar-1996 19.16 23.5 11 2.27 3,534
2 Axis Long Term Equity Fund Dec-2009 16.57 24.58 - 1.97 13,544
3 Franklin India Taxshield Fund Apr-1999 16.69 20.44 13.57 2.34 3,042
4 DSP BlackRock Tax Saver Fund Jan-2007 17.72 22.6 13.34 2.5 2,781
5 L&T Tax Advantage Fund Feb-2006 17.75 20.36 13.22 2.08 2,293
6 Tata India Tax Savings Fund Mar-1996 19.97 22.23 12.04 2.52 705
7 Birla Sun Life Tax Plan Feb-1999 18.38 22.72 10.6 2.63 552
8 IDFC Tax Advantage (ELSS) Fund Dec-2008 17.93 22.72 - 2.4 621
9 Invesco India Tax Plan Dec-2006 16.11 21.44 14.52 2.46 421
10 Escorts Tax Plan Apr-2000 24.01 19.71 5.65 - 6
11 IDBI Equity Advantage Fund Sep-2013 18.32 - - 2.83 645

Disclaimer: All blog posts of are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.

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