Tax Savings Mutual Fund: Equity Linked Savings Scheme (ELSS) is a popular option for tax savings investment in the salaried class. Its most special thing is that most of the schemes of this category have a lock-in period of 3 years. But looking at the returns of the last 3 years, it has disappointed the investors. More than 60 percent of this category has given fewer returns than its benchmark. Overall, the 3-year return in this category is less than 4 percent. So, now the attraction of mutual funds is decreasing after the changes in tax-related rules or is it still a better option for long-term investors.
Not necessarily redeem in 3 years
BPN Fincap Director AK Nigam says that if we see the returns of the last 3 years, there will be a disappointment once, but it is not necessary that it be cashed after the lock-in is completed. The scheme with a lock-in period of 3 years can also be held for a long time. If investors look at the long-term returns on ELSS, this will be more clear. In the 3 years, the ELSS category, which has given less than 4% return, has a CAGR of 5 years at 9.43% and CAGR of 10 years at 9.50%. In 5 years, ELSS returns are 2.5 to 3 percent higher than any tax savings options.
Better Post Tax Return
According to Ajit Menon, CEO of PGIM India Mutual Fund, the return on investment in ELSS and the amount of redemption is also tax-free. ELSS gives better post-tax returns, as LTCG is exempted from income tax up to Rs 1 lakh a year from ELSS mutual funds. Taxes at the rate of 10 per cent have to be paid on profits above this limit. Talking about investing in ELSS, at least 80 percent of this exposure is in equity. It can technically be up to 100 percent. It also has the flexibility to invest in all market caps. Which makes it a unique product among equity funds.
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Best return scheme in 5 years
Quant Tax Direct Fund
Return: 16.71 percent
Value of 1 lakh in 5 years: 2.17 lakh
Minimum investment: Rs 500
BOI AXA Tax Advantage Fund
Return: 13.90 percent
Value of 1 Lakh in 5 years: 1.92 Lakh
Minimum investment: Rs 500
JM Tax Gain Fund
Return: 13.84 percent
Value of 1 lakh in 5 years: 1.91 lakh
Minimum investment: Rs 500
Axis Long Term Equity Fund
Return: 13.33 percent
Value of 1 Lakh in 5 years: 1.87 Lakh
Minimum investment: Rs 500
Canara Robeco Equity Tax Saver
Return: 12.94 percent
Value of 1 Lakh in 5 years: 1.84 Lakh
Minimum investment: Rs 500
Invesco India Tax Fund
Return: 12.51 percent
Value of 1 lakh in 5 years: 1.80 lakh
Minimum investment: Rs 500
