Investing in ELSS funds (Equity Linked Savings Schemes) is one of the most efficient ways for individuals to grow their wealth while saving taxes. These funds have a unique benefit under Section 80C of the Income Tax Act, making them one of the most popular investment choices for individuals looking to reduce their tax liability. Over the past decade, some Equity Linked Savings Schemes have delivered impressive returns, with several schemes giving over 18% annualised returns. In this article, we will explore the five best-performing ELSS funds, their tax-saving benefits, and how they align with the Income Tax Slab for FY 2024-25.
What are ELSS funds?
ELSS funds are a type of mutual fund that primarily invests in equities and equity-related instruments. What sets these funds apart from other mutual funds is their tax-saving feature under Section 80C, which allows investors to claim a deduction of up to Rs. 1.5 lakh in a financial year. The returns from these funds are linked to the stock market, offering the potential for high growth over the long term.
Key features of ELSS funds:
- Tax benefits: Investments in ELSS funds are eligible for deductions under Section 80C of the Income Tax Act. This makes them an attractive option for individuals looking to reduce their taxable income.
- Lock-in period: Equity Linked Savings Schemes come with a mandatory lock-in period of three years, which is the shortest among all Section 80C investments. After this period, investors can redeem their units or continue holding them to benefit from further capital appreciation.
- Equity exposure: As these funds invest in equities, the returns are subject to market risks. However, over the long term, equity investments tend to outperform other asset classes, making Equity Linked Savings Schemes a solid choice for wealth creation.
Income tax benefits of ELSS funds
One of the biggest advantages of investing in Equity Linked Savings Schemes is the tax savings they offer. Under Section 80C, individuals can claim a deduction of up to Rs 1.5 lakh in a financial year, reducing their taxable income and ultimately lowering their tax liability. This is particularly beneficial when combined with the FY 2024-25 Income Tax Slab.
Income Tax Slab for FY 2024-25:
- For individuals below 60 years:
- Income up to Rs 2.5 lakh: No tax
- Rs 2.5 lakh to Rs 5 lakh: 5%
- Rs 5 lakh to Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
- For senior citizens (60-80 years):
- Income up to Rs 3 lakh: No tax
- Rs 3 lakh to Rs 5 lakh: 5%
- Rs 5 lakh to Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
By investing in Equity Linked Savings Schemes, individuals can bring their taxable income down, allowing them to move into a lower Income Tax Slab. This can lead to significant tax savings, especially for those in higher income brackets.
Top 5 ELSS funds that gave over 18% annualised returns in the past 10 years
Now that we’ve covered the basics of ELSS funds and their tax-saving benefits, let’s dive into the top 5 Equity Linked Savings Schemes that have delivered more than 18% annualised returns over the past decade.
1. Axis Long Term Equity Fund
The Axis Long Term Equity Fund has consistently been one of the top performers in the ELSS funds category. Over the past 10 years, it has delivered an annualised return of around 18.5%. The fund focuses on investing in high-growth companies with strong fundamentals, making it a favourite among investors.
2. Mirae Asset Tax Saver Fund
The Mirae Asset Tax Saver Fund is known for its disciplined approach to stock selection and portfolio management. With an annualised return of over 18.2% in the last 10 years, this fund has consistently outperformed its benchmark and peers. It invests in a diversified portfolio of stocks across sectors, making it a balanced option for investors.
3. Canara Robeco Equity Tax Saver Fund
Another top-performing ELSS fund is the Canara Robeco Equity Tax Saver Fund, which has delivered annualised returns of around 18.4% over the past decade. The fund focuses on a mix of large-cap and mid-cap stocks, providing both stability and growth potential.
4. DSP Tax Saver Fund
The DSP Tax Saver Fund has been a consistent performer in the ELSS funds category, with a 10-year annualised return of 18.1%. The fund invests in a diversified portfolio of equities across sectors, offering investors a balanced exposure to the market.
5. Aditya Birla Sun Life Tax Relief 96
The Aditya Birla Sun Life Tax Relief 96 Fund has been a popular choice among investors looking for tax-saving opportunities. Over the past 10 years, the fund has provided an annualised return of around 18.3%. It focuses on investing in a diversified portfolio of stocks, ensuring steady growth over the long term.
Why invest in ELSS funds?
There are several reasons why ELSS funds stand out as a top choice for both tax savings and wealth creation:
1. Short lock-in period
Compared to other tax-saving instruments like the Public Provident Fund (PPF) and National Savings Certificate (NSC), ELSS funds have a much shorter lock-in period of three years. This allows investors to benefit from the equity market while maintaining liquidity.
2. High return potential
Because Equity Linked Savings Schemes primarily invest in equities, they have the potential to generate higher returns compared to other Section 80C investments. As seen with the top 5 ELSS funds, annualised returns exceeding 18% are possible over the long term.
3. Tax-efficient returns
The returns from ELSS funds are subject to long-term capital gains (LTCG) tax. Gains up to Rs. 1.25 lakh in a financial year are tax-exempt, while gains above this threshold are taxed at 12.5%. This makes Equity Linked Savings Schemes a tax-efficient investment, particularly for individuals in higher income brackets.
4. Diversification
Investing in ELSS funds provides exposure to a diversified portfolio of stocks across different sectors. This diversification reduces the overall risk while offering the potential for capital appreciation.
Conclusion
Investing in ELSS funds is a smart strategy for individuals looking to save taxes under Section 80C while benefiting from the growth potential of equities. The top 5 Equity Linked Savings Schemes mentioned above have consistently delivered impressive returns, with annualised growth exceeding 18% over the past decade. By leveraging the tax benefits of ELSS funds and understanding the Income Tax Slab for FY 2024-25, investors can not only reduce their tax liabilities but also build significant wealth over the long term.