#5 reasons to add ELSS to your portfolio

While tax planning may seem to be a difficult process, Mutual Fund offers you a simple way to get tax benefits.

ELSS i.e. Equity Linked Savings Scheme is a type of mutual fund that qualifies for tax exemption under section 80 C and had a lock in period of 3 years. As the name suggests, the scheme invests majority of corpus in equity instruments.

Why Equity Linked Savings Scheme ELSS?

1. Save tax: This is the most obvious reason why people invest in ELSS. You can claim a deduction on income of 1,50,000, thereby saving 46,350* on taxes.
2. Earn potentially higher returns: Average category returns for ELSS for the last 10 years are 11.86% (Source: Morningstar, returns as on Oct 31, 2019). ELSS invest predominantly in equity and equity related instruments and thus have the potential to deliver higher returns than your traditional products.
3. Shortest lock-in period: ELSS has a lock-in of just 3 years, when compared to other popular products like PPF (a lock-in of 15 years), NPS (locked-in until you're 60), tax-saving FDs (lock-in of 5 years). Many other tax-exempt products have lock-ins of 5+ years too. With the short lock-in, ELSS gives you higher liquidity compared to other instruments.
4. Tax-free capital gains and dividends: As ELSS is an equity-oriented product, equity taxation applies to these products. Capital gains up to 1,00,000 are exempt from taxes and gains above this are taxed at 10%. Dividends are tax-free.
5. Low minimum investment: You can invest as little as 250 if you start a SIP in tax-saving funds or invest lump sums with as little as 500. Do note: Every SIP installment will be locked-in for 3 years.

How do deduction u/s 80C work?

Particulars	Without Tax Saving Investments u/s 80C	With Tax Saving Investments u/s 80C
Gross Total Income	Rs.7,50,000	Rs.7,50,000
Exemption u/s 80C	Nil	Rs.1,50,000
Total Income	Rs.7,50,000	Rs.6,00,000
Tax on Total Income	Rs.75,000	Rs.45,000
Tax saved	Nil	Rs.30,000