Today, we will look at the meaning of ELSS funds, their taxation, explain why ELSS funds are the best tax saving mutual funds in India and also reveal the best ELSS funds to invest in.
Let us now look at the best ELSS Tax Saving Mutual funds in India
| ELSS Funds | RankMF Rating | 1 Year | 3 Years | 5 Years | Since Inception |
| Axis Long Term Equity Fund | 5 Star | 3.04% | 7.94% | 10.83% | 16.07% |
| Canara Robeco Equity Tax Saver Fund | 4 Star | 13.85% | 9.58% | 11.23% | 18.45% |
| Aditya Birla Sun Life Tax Relief ’96 Fund | 4 Star | 1.69% | 1.73% | 8.95% | 9.83% |
| UTI Long Term Equity Fund | 4 Star | 7.35% | 3.28% | 8.34% | 10.29% |
| Kotak Tax Saver Fund | 4 Star | 4.57% | 3.87% | 9.57% | 10.97% |
What are ELSS funds?
ELSS funds are equity-oriented mutual funds that invest 80% of their corpus in equity and equity-related instruments of companies across sectors and market capitalization. ELSS funds are popularly known as ‘tax saving’ funds as they offer the dual benefit of tax saving and wealth creation.How do ELSS funds help in saving tax?
ELSS funds are a unique type of equity mutual funds that qualify for tax deduction. You can claim upto Rs 1.5 Lakh as a deduction under section 80C of the Income-tax act. Unlike equity mutual funds, ELSS funds have a lock-in period of 3 years. In case you have invested in ELSS funds through a SIP, then each SIP installment will have a lock-in period of 3 years from the date of purchase. While ELSS funds have a lock-in period of 3 years, since in principle, they are equity-oriented mutual funds, you should hold your investments for a minimum of 5 years to generate lucrative returns.How are ELSS funds taxed?
The taxation of ELSS funds is similar to the taxation of other equity-oriented mutual funds. Short-term capital gains are taxed at flat 15% whereas long term capital gains are taxed at 10% if the overall gains exceed Rs 1 Lakh in a financial year. The tax exemption limit of Rs 1 Lakh is including the gains realised in direct equity i.e. equity shares. Since ELSS funds cannot be redeemed, under any circumstances, before 3 years, short term capital gains tax is never applicable for ELSS funds. While calculating the long term capital gains tax for ELSS funds, the cost price of units bought prior to 31st January 2018, will be the NAV as on 31st January 2018 according to the grandfathering clause.How have ELSS funds performed in comparison to other tax saving options?
ELSS funds, whilst carrying the lowest lock in period have outperformed all other tax saving options in India such as PPF, NPS, NSC, 5-year tax saving FDs etc.ELSS funds Vs. Traditional tax saving options in India
| Tax Saving Instrument | Lock-in Period | Average Returns |
| 5-year tax saving bank FD | 5 Years | 3% - 5% |
| Public Provident Fund | 15 Years | 7% - 8% |
| National Pension Scheme | Till Retirement | 7% - 10% |
| National Savings Certificate | 5 Years | 7% - 8% |
| ELSS Funds | 3 Years | 12% - 15% |
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