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31 JANUARY, 2023
Investors look at two ways for calculating returns when it comes to any investment – value appreciation and tax saved. If an investment offers a way to save tax on income, while generating real returns, it is likely to be popular as an investment option, especially amongst salaried. This is one of the prime reasons why investment options such as NPS, Unit linked Insurance Plans (commonly known as ULIPs) and Tax saving Mutual Funds, also known as Equity Linked Savings Scheme (ELSS) is popular among a majority of investors.
ELSS is among the most commonly recommended tax-saving instruments for salaried individuals. New investors often use it as a good starting point. Due to the tax benefit offered, they are a preferred option for those looking to save tax on income of up to Rs. 1.5 lakhs per annum, while looking at generating returns linked to the equity market.
What are ELSS Funds?
ELSS as the name implies, is a category of Mutual Funds, which primarily invest in the equity market and at the same time helps investor in availing deductions under section 80C of the Income Tax Act, 1961 of up to Rs. 1.5 lakhs from the annual income. Due to this feature, these funds are also popularly called as Tax Saving Funds. A tax saver fund should invest at least 80% of its corpus in equities and equity-related instruments to qualify for this category. Like most other equity linked funds, you can invest this amount in the fund as either monthly or quarterly contribution (SIP) or as a lump sum investment.
Why invest in ELSS?
ELSS funds represent one of the tax-saving instruments that could provide relatively higher returns compared to peers along with lowest lock-in period, and should be considered by investors to the maximum extent permitted under the tax laws in order to reduce tax outgo. Overall returns should be considered after keeping in mind the total of tax saved and returns obtained. Investors of course are free to invest more if they wish, with the provision that the tax-saving aspect is removed. For those investing in these funds, holding on to these investments beyond the mandatory three year lock-in period usually delivers incremental gains in returns.
Some of the recommended ELSS funds by Kotak are:
AUM (in crs)
Source: MFI Explorer | Data as on 31st January 2023
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Kotak Mahindra Bank Limited, AMFI Registered Mutual Fund Distributor. AMFI Registration Number (ARN) 1390.
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