Investments in equity-linked savings scheme, or ELSS, can be made in lump sum or SIP mode depending on the investor's choice. A couple of points to be noted about the modes of investment are: Tax benefits would be available only in the financial year in which the investment is made and only on amount invested in that financial year.
Further, since ELSS investments are locked-in for 3 years, investments made through the SIP mode would result in each SIP getting locked in for a 3-year period starting from the date of respective SIP. Therefore, one should have a minimum investment horizon of 3 years while considering investments into ELSS funds.
Additionally, the investment amount is deductible from your gross total income under Section 80C of Income tax Act (up to a limit of R1.5 lakh per annum). Since ELSS are classified as equity schemes for taxation purposes, dividends as well as long term capital gains (since they are locked-in for 3 years) are tax free.
Besides tax planning, the other important aspects about investing in ELSS you should consider are your risk appetite and investment horizon. ELSS funds invest in equities, which tend to generate attractive returns over the longer term (3 to 5 years and above) but these returns can fluctuate over the short term. For example, ELSS funds have generated annualised returns of 17% and 10% over the last 3 years and 5 years respectively, on an average.
But this has been accompanied by a few periods of negative returns. Historically, the probability of generating negative returns from ELSS funds has been 6.2%, 0.83% and 0% over 3-year, 5-year and 7-year holding periods respectively over the last 15 years. In other words, out of a total of 145 periods of 3 years each, over the last 15 years there were 9 periods in which the category on an average generated a negative return. As the investment horizon increased to 5 years, the number of periods with negative returns reduced to 1 out of 121 periods. Hence, one should have at least a moderate risk appetite while considering investments into any equity fund including ELSS funds.
Top 10 Tax Saving Mutual Funds to invest in India for 2016
Best 10 ELSS Mutual Funds in india for 2016
1. BNP Paribas Long Term Equity Fund
2. Axis Tax Saver Fund
3. Franklin India TaxShield
4. ICICI Prudential Long Term Equity Fund
5. IDFC Tax Advantage (ELSS) Fund
6. Birla Sun Life Tax Relief 96
7. DSP BlackRock Tax Saver Fund
8. Reliance Tax Saver (ELSS) Fund
9. Religare Tax Plan
10. Birla Sun Life Tax Plan
Invest in Best Performing 2016 Tax Saver Mutual Funds Online
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