ELSS or equity linked savings schemes are a kind of equity oriented mutual fund with great diversification. The scheme gets its name equity linked saving scheme from the fact that majority of its corpus remains parked in equities. It offers tax exemption under section 80C of the Income Tax Act, which enables it to provide dual benefit of tax exemption and capital appreciation to investors.
Although there are many benefits of investing in ELSS, the most prominent ones have been dished out here. Check out-
The returns you get are impressive-
If you need long term high returns, equities are the option for you. And the returns you receive are often higher than what other comparable funds can offer. Because of a shorter lock-in period, you as well as the fund manager are safe from redemption pressures. As a result of which they are able to focus more dedicatedly on devising your portfolio with a long-term perspective.
The returns qualify for tax exemption-
ELSS funds are a kind of equity fund. And because they are under the equity asset class, the returns you get after one year are exempted from tax. ELSS also come with a lock-in period of three years. That means, it’s not just the returns, capital gains and dividends are also tax free.
The investments are not taxed-
Under section 80C of Income Tax Act, all the investments made in ELSS are tax free. If you are going to make an investment of INR 150000, you will fall under the 30% tax slab, which will enable you to save taxes upto INR 46350. This may vary according to your investment amount and the tax slab under which the investment falls.
Stands out in the market-
Most of the tax-saving instruments available in the market are debt funds. If you aim at earning higher returns by making considerable savings, then investing in ELSS would be the best bet. Nevertheless, ELSS is linked to the market directly, so there is no guaranty on the returns. This is one of the reasons why people refrain from saving in equity oriented products. But if you are planning to save over a longer term, such risks get significantly minimized.
Planning for your long-term financial goals-
These funds are perfect for meeting your long-term financial goals. All your long-term goals like buying aproperty, educating your child, marrying them off etc. can be met with ELSS over a longer term. However, for desired results, you must focus on reviewing the fund on a constant basis, preferably with the help of a professional financial advisor.
Choose your plan as per your financial objectives-
There are two basic options available- growth and dividend. If you think growth plan doesn’t suit you, you have the scope of choosing the dividend plan. Opting for a dividend ELSS fund will enable you to receive dividends declared by companies over time as well as make profits while raking up tax exempted income.
Choose investment option as per convenience-
The fund also offers you the liberty to choose the mode of investment as per your convenience. So, you can either choose to make a lumpsum investment or take the SIP approach. Although both the options are extremely handy and convenient, it’s better to go for lumpsum investment if you are investing in an ELSS for tax benefits.
Short lock-in period-
The lock-in periods for most investment instruments like TD, PPF, FD and NSC are mostly five years or longer. But ELSS comes with a shorter lock-in period of three years.
Although there are many ELSS products in the market, one of the best is ICICI Prudential Long Term Equity Fund. Read on to know more about the fund and its performance over the years.
ICICI Prudential Long Term Equity Fund-
It is an open-ended growth plan that was launched on the 9th of August, 1999. The main objective of this fund is capital appreciation over the long term. The investments remain parked in equities and equity linked company securities. If you want to invest in this scheme, you can start as low as INR 500.
- The scheme offers tax benefits under the provision of 80C of the income tax act, 1961.
- It has a shorter lock-in period as compared to other traditional tax saving instruments i.e. of three years.
- If you want to earn tax-free dividends and higher returns, this is the scheme for you.
- If redemption is made after lock-in period, long term capital gains are not taxed.
- If you are looking to create wealth over the long term, this scheme is perfect for you.
Now, let’s look at the performance of the scheme over the years.
Here is the performance table of the scheme since its launch. In the first year of its inception, the scheme offered a return of 9.58% against 20.67% return offered by other comparable funds in that year. Because it was the first year of the scheme’s launch, the poor performance is justified and understandable. In the third year of launch, the scheme geared up its performance and registered a return of 10.38%. The market was difficult that year, so, other comparable funds also didn’t do substantial business and ended up offering a comparatively low return of 15.14% as opposed to 20.67% that it offered formerly. Now, let’s look at the fund’s fifth year of return. In the fifth year, the scheme took a leap and registered a 17.98% return, while the market average was pegged at 18.87%, slightly higher than what ICICI offered. In the tenth year of the scheme’s advent, it outperformed parallel schemes that on an average offered a return of 9.52% by 2.64%. Although the scheme had a less impressive start, it sped up its performance and soon surpassed other comparable funds in the market. So, the overall return registered by the scheme since its launch is pegged at 21.35% as against 16.98% offered by other equivalent schemes.
Source: Swaraj Wealth Research
Below, you find the yearly performance graph of the scheme covering the years 2012, 2013, 2014, 2015 and 2016. In all these years, the scheme either outperformed other equity linked savings schemes in the market or ran with them parallelly. It’s only occasionally that the performance dipped, and even when it dipped, the dip was negligible.
Source: Swaraj Wealth Research
From the discussions above, it may be inferred that ICICI Prudential Long Term Equity Fund is indeed a good choice for investors. So, if you want profitable returns, you can invest in this fund without apprehensions.