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ELSS Funds

ELSS stands for Equity Linked Saving Scheme. Investing in these funds helps investors claim a deduction of up to 1.5 Lakh u/s 80C of the Income Tax Act, 1961.

What are ELSS funds?

An Equity Linked Savings Scheme (ELSS) fund is a type of mutual fund that invests primarily (a minimum of 80%) in equities and equity-related instruments. The fund manager can invest in stocks across market capitalisations – large-cap, mid-cap, and small-cap – and in a specific percentage that depends on the investment objective of each scheme.
Inflation can be a pain point for investors because it can eat away your savings and investments. This can be a problem, primarily while investing in traditional financial instruments, because the real rate of return after factoring in inflation tends to be low. But equity mutual funds typically have the potential to generate inflation-beating returns. This also holds in ELSS, as the portfolio skews towards equity.
Regarding classification, ELSS funds are called diversified mutual funds, and while these funds also invest in debt and debt instruments, it forms a minority portion of the portfolio. ELSS mutual funds are sometimes also known as tax-saving funds because investors can avail of tax exemption of up to Rs 1.5 lakh in a fiscal year under Section 80C of The Income Tax Act, 1961.
Since the lock-in period is three years, gains from ELSS are subject to a long-term capital gains tax of 10%. Incomes below Rs 1 lakh are tax-free.

Features of ELSS funds

  • An ELSS fund invests at least 80% of the total corpus in equity and equity-related investments
  • Investments can be made in stocks across market capitalisations and sectors
  • ELSS mutual funds are subject to market risks similar to that experienced while investing directly in equities
  • ELSS funds are open-ended, so you can keep investing in them anytime
  • By investing in an ELSS fund, investors can claim deduction from gross taxable income under Section 80C
  • The systematic investment plan (a.k.a. SIP ) route is available to investors who do not wish to invest in ELSS funds through the lump sum route
  • ELSS funds offer a lock-in period of three years from the date of purchase, considered one of the lowest lock-in periods among various tax saving schemes
  • Because of the lock-in period of three years (investors don’t have the option to withdraw during that period), the short-term capital gains tax does not apply. Instead, gains from ELSS mutual funds attract a long-term capital gains tax of 10%. If these gains are less than Rs 1 lakh, it is tax-free
  • There is no upper limit to the investment you can make in an ELSS fund. However, the deduction from gross taxable income will be limited to Rs 1.5 lakh as per Section 80C of The Income Tax Act, 1961

Benefits of ELSS Funds

Tax benefits of ELSS funds
There are some tax benefits that investors can take advantage of by investing in ELSS funds. These are as follows:
  • Under Section 80C of the Income Tax Act 1961, investors qualify for a tax deduction of up to Rs 1.5 lakh. This can translate into a maximum potential tax saving of up to Rs 46,800 per annum.
  • Gains from ELSS funds are taxed as long-term capital gains because withdrawals are only allowed after the lock-in period of three years. These gains attract long-term capital gains of just 10%, and if the profits are below Rs 1 lakh, they are tax-free.

Factors to consider before investing in ELSS

Here are some factors to keep a note of before investing in ELSS funds:

Nippon India Tax Saver (ELSS) Fund

Nippon India Tax Saver Fund is an Equity-Linked Savings Scheme or ELSS fund. It can make you eligible for deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. Designed with the primary objective of long-term capital appreciation, the fund aims to allow investors to achieve various long-term goals while also benefiting from the tax rebate on ELSS investments. Get maximum ELSS taxation benefits by investing in Nippon India Tax Saver Fund.
The Scheme also offers various options/plans which are suitable for different types of investors with standard and scheme-specific risk factors involved. These include
Growth Plan
Direct Plan - Growth Plan
Direct Plan - Income Distribution Cum Capital Withdrawal Plan
Income Distribution Cum Capital Withdrawal Plan
At its core, Nippon India Tax Saver Fund primarily invests in equities or stocks of listed companies in a proportion specified under the scheme objectives. The stocks are chosen from across different industry sectors and market capitalisation. Our fund managers invest in these stocks based on in-depth market research to deliver risk-adjusted returns while also helping the investors to save tax on ELSS investments.
Our tax saver fund is suitable for different types of investors, including
  • First-time investors who want to experience what it takes to invest in equity-oriented mutual funds along with ELSS taxation benefits
  • Salaried individuals who want to balance out the return and risk in their portfolio to plan for fulfilling various life goals
Nippon India Tax Saver (ELSS) Fund
An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefits.
Latest NAV
78.5313
30 - Jan - 2023
Product Label and Risk Categories

Here’s Why You Should Invest in Nippon India Tax Saver (ELSS) Fund

  • Short lock-in period of only three years - the shortest among the other 80C investment options
  • Better return potential than many other traditional investment instruments
  • Easy to build a diversified portfolio to reduce investment-related risk
  • Save up to Rs. 46,800 in a year as a tax on ELSS
  • Facility to start investing a small amount every month via the SIP route

How to Invest in Tax-Saving Mutual Funds?

KYC (Know Your Customer) compliance is the first thing you need to be aware of before investing in the best tax-saving instruments. As an investor, you need to be KYC compliant before investing in ELSS funds, either offline or online, to save tax on ELSS returns.
If you are not KYC compliant, you must know that from January 2011, KYC norms are mandatory for mutual fund investors, irrespective of the amount to be invested. All the SEBI-registered intermediaries must follow a uniform KYC compliance procedure. SEBI also issued KYC Registration Agency Regulations 2011 and the guidelines.
Further, there are two ways to buy/invest in ELSS funds to save tax on ELSS returns.

Offline Investment

The steps involved in making ELSS investments offline are:
  • Contact a mutual fund distributor to fill up the investment form
  • Submit investment cheques or cash to the distributor, who will then deposit the same to the mutual fund company

Online Investments

Follow the steps given below to invest in the best tax-saving instruments:
  • Register on our website using your valid mobile number, email address, and PAN number
  • We will automatically verify whether you are KYC compliant or not using these details
  • We will automatically verify whether you are KYC compliant or not using these details
  • Select Nippon India Tax Saver Fund
  • Select from direct or regular option
  • Select SIP or lumpsum
  • Make a payment online and start saving tax on ELSS returns
While you can save taxes of up to Rs. 1.5 lakh with your ELSS investments, there is no upper limit to the amount you can invest in this fund.

ELSS Calculator

Here’s how you can calculate your tax liability if you choose to invest in ELSS funds:

What is your taxable income?

2L 10Cr
How much can you invest annually in an ELSS?
0 1.5L
 
This is how much tax you pay
With ELSS funds, your tax reduced to
Your overall savings
“The results displayed by the calculator should be used only to understand fundamental financial/investment related concepts and should in no way be used to develop or implement any investment strategy. The calculator is created to help investors make an informed decision and is not an investment process in itself. Investors are advised to seek professional advice before taking any investment decision.”

What are LTCG and STCG Taxes on ELSS Funds?

ELSS mutual funds fall into the equity fund categories and are ,therefore, taxed like an equity mutual fund scheme.
Since there is a mandatory lock-in period of three years, the taxation of Short-Term Capital Gains (STCG) is ruled out. On the other hand, the Long-Term Capital Gains (LTCG) of up to Rs. 1 lakh are tax-exempt. The rate of tax on ELSS returns or gains beyond Rs. 1 lakh is 10%, without indexation benefit.
Maximum deduction from gross taxable income under section 80C towards investments under the ELSS scheme Rs. 1,50,000
Income Tax Rate Slab 30% 20%
Tax Saved 30% of Rs. 1.5 lakh = Rs. 45,000 20% of Rs. 1.5 lakh = Rs. 30,000
Health and Education Cess (4%) Rs. 1,800 Rs. 1,200
Total Tax Saved Rs. 46, 800 Rs. 31,200
It means you can save taxes on ELSS of up to Rs. 46,800 if you fall in the 30% income tax slab rate

FAQs

1. What are ELSS funds?

ELSS funds are diversified mutual funds with a minimum of 80% exposure to equity and equity-related instruments in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance. ELSS funds are also called tax-saving funds because of the deduction up to Rs. 1.5 lakh from gross taxable income under Section 80C of the Income Tax Act, 1961.

2. How does ELSS work?

ELSS funds have a three-year lock-in period, and redemptions are allowed after the completion of those three years. Since ELSS schemes can invest in stocks across market caps, investors can benefit from diversification. Every plan can have a different investment objective; therefore, the percentage of funds divided across large-caps, mid-caps, and small-caps will vary. Also, since the portfolio is equity oriented, it may generate inflation-beating returns.

3. How to invest in ELSS?

While investing in ELSS funds, you can opt for the growth option or the IDCW (Income Distribution cum Capital Withdrawal) option depending on your investment objectives. In any of these schemes, you could invest a lump sum amount or opt for the SIP route. You can check the returns on your SIP investments by using our SIP calculator.

4. How to buy ELSS online?

An investor is required to be Know Your Customer (KYC) compliant to apply online. You can either register on the mutual fund website or pick online investment platforms where various ELSS schemes across mutual funds are available in one place. Select the ELSS funds you wish to invest in, after which you must choose the amount and mode of investment (lump sum or SIP). You must also enter your Know Your Customer (KYC) details.

5. What is ELSS SIP?

If you are not comfortable with a lump sum investment, you can invest in ELSS through the SIP route, and the lock-in period here is also three years. However, because you are investing a certain amount every month, the lock-in period for each amount will also differ.

Consider this example:

Let’s say you opt for a SIP where you invest Rs 5,000 per month for 12 months. You begin to invest on 1 April 2022. If the net asset value (NAV) is 50, you will be allotted 100 units. In May, if the NAV falls to 40, you will get 125 units. In June, the third month, if the NAV rises to 60, you will be given 83.33 units, and so on. Thus, at the end of three months, you will have 308.33 units. But, since this is an SIP, the lock-in period (of three years) for each monthly investment will vary.

The 100 units you received on 1 April 2022 can be redeemed after 31 March 2025. The 125 units received on 1 May 2022 can be redeemed after 30 April 2025, and you can redeem the 83.33 units received on 1 June 2022 after 31 May 2025.

6. How to invest in ELSS through SIP?

Investing in ELSS through SIP is the same as investing in other mutual fund schemes through the SIP route. You can select the amount you wish to invest every month and your investment tenure. Investing in ELSS through SIP makes you eligible for tax exemption under Section 80C of the Income Tax Act, 1961.

7. Who should invest in ELSS?

Salaried individuals can consider ELSS funds. Besides traditional financial instruments that include debt, ELSS is an option they can consider if they prefer some exposure to equity too. First-time investors can also consider investing in ELSS funds since they get twin benefits of exposure to equities and mutual funds as well as tax exemptions. Any individual with the appetite to bear market risks and a long-term investment horizon can consider these funds.

8. Can an NRI invest in ELSS?

Yes, an NRI can invest in ELSS schemes and avail of the tax deduction under Section 80C of the Income Tax Act.

9. How much to invest in ELSS?

There is no upper limit to how much you can invest in an ELSS, so the quantum of investment will depend on your risk appetite and goals. Important to note that a maximum of Rs. 1.5 lakh is eligible for deduction from gross total income as per the Income Tax Act, 1961, and so if you have invested more than that in the fund, you will not get any tax exemption on the balance.

10. Why must one invest in ELSS?

ELSS funds can be considered by investors who want some exposure to equity as part of their overall investment portfolio and, at the same time, enjoy the advantage of tax savings and exemptions.

11. What kind of returns can I earn from ELSS?

The returns you can expect from ELSS depend a lot on the nature of the scheme you have invested in, the scheme's objectives, the expense ratio, and the consistency of the fund’s performance. But given ELSS funds are equity oriented, they may deliver inflation-beating returns.

12. Can the Nippon India Tax Saver (ELSS) fund be used for wealth creation?

Nippon India Tax Saver (ELSS) Fund has dual advantages of tax benefits and wealth creation for investors like you. While many individuals choose to make ELSS investments in this fund for tax benefits primarily, you can include it in your portfolio to achieve various financial goals in the long run. You can plan to invest in these funds based on other Section 80C investment options you have already opted for and the financial goals you have in mind.

13. How long should I stay invested in ELSS mutual funds?

While the lock-in period of ELSS funds is three years, you can stay invested in these funds for as long as you want. Since ELSS mutual funds are equity funds at their core, you can continue with your investments for five years or more to get good returns. The ultimate decision to select the investment horizon related to these funds depends on multiple factors, including your financial health, life goals, income, and others.

14. Is there a minimum investment requirement for ELSS?

The minimum threshold criterion for ELSS investments depends on the mutual fund scheme you select. It is     Rs. 500 for Nippon India Tax Saver (ELSS) Fund.

15. Is ELSS taxable after three years?

As detailed above, the ELSS taxation is based on your selected investment horizon. Because of the three-year lock-in period, the STCG concept is not relatable here. However, if you choose to sell your mutual fund units after three years, the LTCG above Rs. 1 Lakh will be taxed at 10% without indexation benefit. If the long-term gains after three years are under Rs. 1 lakh, there is no tax payable on them.

16. What maximum tax benefit can be availed by investing in ELSS every year?

ELSS is considered one of the most popular 80C investment options for investors looking to save taxes. The maximum benefit you can avail with an ELSS investment is limited to the maximum capping defined under Section 80C of the Income Tax Act, i.e., Rs. 1.5 Lakh. Which means deduction of up to Rs 1,50,000 can be claimed from gross taxable income. However, this does not mean you cannot invest more than Rs. 1.5 Lakh in the ELSS fund of your choice.

17. How to get an ELSS statement?

You can easily get the ELSS statement of your investments in Nippon India Tax Saver (ELSS) Fund via our mobile applications or by using our official website and logging into your user account.

18. How to redeem ELSS mutual funds?

When it is about the redemption of ELSS fund units you have purchased, you should know that you can redeem the unlocked units only at their current NAV price. To make withdrawals, you need to check the number of units available for redemption and submit a redemption request with us. Once your request is approved, you will get the corresponding amount credited to your linked bank account.

19. What is the lock-in period in ELSS mutual funds?

With ELSS mutual funds, the lock-in period is three years, which means you are not allowed to redeem ELSS mutual fund units until this period ends. If you have opted for SIP investments in ELSS funds, you can only stop the ongoing SIP but cannot withdraw the amount invested before three years.

20. How to open an ELSS account?

Once you are e-KYC compliant, you can invest in Nippon India Tax Saver (ELSS) Fund online through our mobile app, official website, or aggregator platforms. Simply select the scheme, enter the amount you want to invest, and proceed with making the payment online.

21. What is ELSS in mutual funds?

ELSS stands for Equity Linked Savings Scheme - a type of mutual fund with which you can plan to save up to Rs. 46,800* as tax every year. This is the reason it is also known as a tax-saving mutual fund. Other than the deduction from gross taxable income you can get with ELSS investment, There is no tax on Capital Gain upto Rs 1,00,000 generated from your investments in a financial year.

22. Is Long-Term Capital Gain Tax applicable on ELSS?

The redemption of ELSS fund units after the lock-in period of three years makes the gains fall under the purview of LTCG tax which is charged at the rate of 10% without indexation benefit, provided your total gains exceed Rs. 1 lakh in a year.

23. Is Short-Term Capital Gain Tax applicable on ELSS?

Since the lock-in period of ELSS mutual funds is three years by default, the STCG tax does not apply to them.

24. How are Long-Term Capital Gains calculated on ELSS?

The Long-Term Capital Gains or LTCG refers to the gains you receive on selling the mutual fund units after three years. The difference between the value of funds at the time of redemption and their NAV at the time of buying is considered LTCG. For example, if you buy 100 units of an ELSS scheme for Rs. 10 and sell them after three years at the rate of Rs. 13 each, the difference of Rs. 300 will be considered your LTCG.

Disclaimer:
The calculator results are for illustration purpose only. Please get in touch with a professional advisor for a detailed suggestion. The calculations are not based on any judgments of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as a promise on minimum returns and/or safeguard of capital. While utmost care has been exercised while preparing the calculator, NIMF does not warrant the completeness or guarantee that the achieved computations are flawless and/or accurate and disclaims all liabilities, losses and damages arising out of the use or in respect of anything done in reliance of the calculator. The examples do not purport to represent the performance of any security or investments. Given the individual nature of tax consequences, each investor is advised to consult his/her professional tax/financial advisor before making any investment decision.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

*80C of the Income Tax Act, 1961. To save tax up to ₹ 46800 (including applicable cess): Individual and HUF having taxable income of less than ₹ 50 Lakhs are entitled to get deduction up to ₹ 1.5 Lakhs from their gross total income for investment made under ELSS scheme during the FY 2022-23. This deduction is available as per the provision of section 80C of the Income Tax Act, 1961. Tax saving will be proportionately reduced subject to the taxable income and investments. Further, investment in ELSS scheme is subject to lock in period of 3 Years from the date of allotment of units. Long term capital gain, if any on ELSS scheme investment is subject to applicable tax at the time of redemption. The tax benefits are as per the current income tax laws and rules. Deduction is available if investor has opted for old tax regime. Investors are advised to consult their tax advisor before investing in such schemes.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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