ELSS: The Best Tax Saving Instrument

This is that time of the year when most of us start looking to plan for saving on tax and evaluate different options available. Deduction under Section 80C is most widely used by many to save on tax. Nonetheless, there are many instruments under this section and all are not equally placed. Taxsaving mutual fund, also known as Equity Linked Savings Scheme (ELSS), I believe, is the best even for investors who can take moderate risk. ELSS scores over others in different ways.

First of all, ELSS has the lowest lock-in period. Other investment options eligible for Section 80C deductions like ULIP, NSC or tax-savings FDs come with a lock-in period of five years. Meanwhile, PPF comes with a lock-in period of 15 years. In addition to this, ELSS tends to generate best post-tax returns. It gives average return in lower teens compared to many other instruments that generate returns in single digit. Besides, your long-term capital gain is free up to Rs 1 lakh after which you will be taxed at a rate of 10 per cent.

Our cover story of this issue explains in detail why and how ELSS remains a superior tax-saving instrument. It also suggests five best ELSS out of which you can invest in any two depending on your risk appetite. In this issue you will also find two interesting stories. One is about ‘skin in the game’, which tries to find out if there is any correlation between returns generated by funds and investment made by fund managers managing them. The other story will give you an insight on ESG funds and whether you should jump on the bandwagon. 

SHASHIKANT