Here’s Why Invest in ELSS for Tax Benefit

Posted On Friday, Feb 03, 2023


‘A penny saved is a penny earned’, so goes a famous saying.

Since taxes payment is a legal obligation, tax-saving should form an integral part of every individual’s financial planning exercise. As a taxpayer, you have the option to select from various tax-saving instruments such as Public Provident Fund (PPF), National Saving Certificate (NSC), Tax Saver Bank FD, Equity-linked Saving Scheme, etc.

Out of the various instruments that offer a tax benefit, Equity-linked Saving Schemes (ELSS), also known as tax saving mutual funds, have gained immense popularity among taxpayers in the last decade. Individuals, as well as HUFs, can invest in ELSS or tax saving mutual funds and claim tax benefits.

SEBI defines tax saving mutual funds as open-ended equity schemes that come with a statutory lock-in period and tax benefit. These funds invest a minimum of 80% of their assets in equity and equity-related instruments and have the flexibility to invest across sectors and the market cap spectrum.

Here is why you should consider investing in ELSS or tax saving mutual funds for tax benefit:

1) Low lock-in period

ELSS or tax saving mutual funds come with a mandatory lock-in period of 3 years which is the lowest compared to other tax-saving instruments. This means you can redeem your investment as soon as 3 years from the date of purchase. National Savings Certificate (NSC) and tax-saving FD both have a lock-in period of 5 years. On the other hand, contributions to Public Provident Fund (PPF) are locked in for 15 years, while those towards National Pension System (NPS) are locked-in till the age of 60 years.

So, if you do not want to commit money for a very long period, say 5 to 15 years or more, then tax saving mutual funds is an investment option you must consider.

2) Return potential

Being equity-oriented, ELSS or tax saving mutual funds have the potential to reap higher returns for their investors compared to non-market linked tax-saving instruments with high risk. Notably, the interest rates on non-market-linked tax-saving schemes such as Tax Saver Bank FD, PPF, and NSC are currently at a multi-year low due to RBI’s measures to support economic growth.

Tax saving mutual funds invest in a diverse range of stocks/sectors/market caps depending on the market conditions to offer investors the benefit of capital appreciation. This gives ELSS a potential to provide long term inflation-beating returns.

3) Deduction under Section 80C

Unlike other equity-oriented schemes, ELSS or tax saving mutual funds offer tax-saving benefits to their investors. Investments of up to Rs 1.5 lakh in ELSS during a financial year are eligible for deduction under Section 80C of the Income Tax Act. Investors in the highest tax bracket can effectively save up to Rs 48,600 in overall tax liability by investing in tax saving mutual funds.

It is important to note that though there is no restriction on the maximum amount that you can invest in tax saving mutual funds or the number of schemes you can hold, the deduction under Section 80C is limited to Rs 1.5 lakh only.

4) Helps you ignore market noise

During uncertain and highly volatile market conditions, many investors rush to redeem their equity mutual fund investments. Since ELSS or tax saving mutual funds invest predominantly in equities, they too are susceptible to market ups and downs. However, the mandatory lock-in of 3 years helps investors to ignore the market noise and stay invested for the long term.

Staying invested for the long term allows you to mitigate the impact of market movements on your portfolio. It also helps  to grow your wealth with the power of compounding. Besides, the lock-in period allows fund managers of Tax saving mutual funds to take long-term high convictions without having to worry about redemption pressure.     

5) Flexibility to invest systematically

ELSS allow you to invest a fixed amount regularly via a Systematic Investment Plan (SIP). Investment in ELSS through the SIP route can be done with a small investment amount of as low as Rs 500. Investing via SIP mitigates the impact of market movements on your portfolio vide the integral rupee-cost averaging feature and, in turn, potentially helps to compounds the investments. In addition, it inculcates a disciplined approach to investing.

That said, remember that if you invest in tax saving mutual funds via the SIP route, each instalment is subject to a lock-in period of 3 years.

If you are looking for a fund that can help you to build wealth over the long and simultaneously help you save tax, consider investing in Quantum Tax Saving Fund.

Here are the top reasons to invest in Quantum Tax Saving Fund:

  1. Optimizes tax saving under Section 80C
  2. Minimises risk by pursuing a bottom-up stock selection strategy
  3. Has a low portfolio turnover
  4. Holds cash when stocks are overvalued - no derivatives and no hedging
  5. Has among low expense ratio in its category

Final thoughts...

Investing in ELSS or tax saving mutual funds can helps to grow your wealth through a diversified portfolio of stocks and also provide tax benefits. If you have an investment time horizon of at least 3 years and looking for market linked returns, you may opt for ELSS or tax-saving mutual funds for tax planning this year.

Being an equity-linked product, ELSS can go through bouts of sharp volatility, and investment returns can see sharp fluctuations. However, they have the potential to provide better returns compare to other tax-saving instruments which are not market linked with high risk.

Finally, when you invest in ELSS or tax saving mutual funds, prefer the Direct Plan over the Regular Plan. The lower expense ratio of a Direct Plan can help you yield better returns than regular plan over the long run.

Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Riskometer of scheme

Quantum Tax Saving Fund

An Open Ended Equity Linked Saving Scheme with a Statutory Lock in of 3 years and Tax Benefit

Tier I Benchmark: S&P BSE 500 TRI

• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index and to save tax u/s 80 C of the Income Tax Act. Investments in this product are subject to lock in period of 3 years.

Investors understand that their principal will be at Very High Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

View All

  • How to Calculate Returns From an ELSS And Its Tax Implications
    How to Calculate Returns From an ELSS And Its Tax Implications

    Posted On Friday, Feb 10, 2023

    As you may know, there are multiple tax-saving options in India to save taxes under Section 80C of the Income Tax Act

    Read More
  • Here’s Why Invest in ELSS for Tax Benefit
    Here’s Why Invest in ELSS for Tax Benefit

    Posted On Friday, Feb 03, 2023

    ‘A penny saved is a penny earned’, so goes a famous saying.

    Read More
  • Top 10 Highlights of the Indian Union Budget 2023-24 and Takeaways
    Top 10 Highlights of the Indian Union Budget 2023-24 and Takeaways

    Posted On Thursday, Feb 02, 2023

    Union Finance Minister Nirmala Sitharaman has presented the Union Budget 2023 heralded as the first budget in Amrit Kaal.

    Read More

Add To Cart

Add To Cart

Your cart is empty
Total of Lumpsum

Get In Touch

Take small steps in your financial planning to achieve big dreams! Start your investment journey today!

@@tlcomstart@@ @@tlcomend@@