Ark wins Emerging Advisor Award ๐Ÿ™‚

ELSS : Best tax saving instrument โ€“ undoubtedly

ELSS : Best tax saving instrument โ€“ undoubtedly

ELSS Fund – has become a generic term in mutual fund industry. If we expand this term it will say Equity Linked Savings Scheme Fund – sounds odd. ๐Ÿ˜‰ Mutual Fund ELSS is a damn good tax saving instrument but still it is not used by maximum Indians. “In India there are close to 3.34 croreย  individual taxpayers but less than 20% have ever invested in Mutual Fund ELSS. “This article will cover everything related to ELSS – It’s meaning, benefits, comparison with other instruments, SIP in ELSS and best ELSS to Invest.


Taxes grow without rain. Like it or not, you have to pay your taxes. The trouble is that understanding taxation requires more than a genius mind. Albert Einstein admitted, “The hardest thing in the world to understand is the income tax.”

Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebate and allowances while ensuring that your investments are in line with your long term goals.

What is ELSS Mutual Fund

ELSS are mutual fund scheme & are quite similar to diversified equity funds of Mutual Fund. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listedย  on the stock exchanges.

The units of the scheme are offered at the NAV (Net Asset Value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme.

Comparison of various tax saving instruments

Apart from these, insurance premium on life insurance policies(you all know why insurance is mutual not there in above table) and principal component of housing loan are also eligible for Section 80 C benefit.

Benefits of ELSS MF

Tax benefit at the Investment

You can get tax benefit under section 80 C of Income tax. Maximum limit is Rs 100000.

Shortest duration

Lockin period of ELSS is 3 year which is shortest in comparison to any other tax saving investment. This lockin is the only difference between diversified equity mutual funds & ELSS.

Tax free return

Any profit/ capital gain you have from ELSS is completely tax free. If you see return from NSC & Tax saving Bank FDs they are completely taxable & added to your income. Only PPF Offers tax- free return but it has a maturity period of 15 years.

Tax free dividends

ELSSschemeskeeps giving dividend on regular intervals & the whole dividend you receive is tax free.

No entry Loads (Less Expensive)

Say if you invest Rs 10000 in ELSS Scheme your complete Rs 10000 is invested in Mutual Fund. You have to decide how much want to pay your advisor. BEWARE some insurance agents sell ULIPS as Mutual Fund + Insurance with lots of expenses.

High Growth

Equity funds can be volatile in the short run, but have been known to beat inflation and create wealth over the long run. If you are looking at investing some money that you won’t need future, and are willing to ride the ups and downs of the market, you may find ELSS an ideal tax saving option.

Actual Value of Rs. 1 Lac invested in ELSS

Returns as on 30 Nov 2010 – Average Returns of all ELSS schemes in the period

Best ELSS in India 2010 – 2011

Best fund comes out after postmortem so consider them as “Top 10 ELSS Fund in last 10 years”

Fund Name 1-Y 3-Y 5-Y 7-Y 10-Y
Return (%) Return (%) Return (%) Return (%) Return (%)
HDFC Taxsaver 25.06 7.78 17.73 29.34 30.46
ICICI Prudential Tax Plan 23.98 6.86 15.4 25.19 28.83
Sundaram Taxsaver 11.2 2.01 18.14 26.6 26.41
Magnum Taxgain 11.4 -0.72 16.02 31.58 24.32
Franklin India Taxshield 22.64 5.48 17.2 23.85 24.19
Birla Sun Life Tax Plan 14.61 -3.07 12.43 20.42 23.18
Tata Tax Saving 16.39 0.6 12.67 19.19 23.1
Birla Sun Life Tax Relief 96 11.81 -3.49 16.36 20.5 21.11
Principal Tax Savings 14.52 -10.95 11.66 19.84 20.73
Principal Personal Tax Saver 15.49 -3.91 16.5 19.98 20.62

Performance Comparison: As onย  24th Dec 2010

Please note that past performance may or may not be sustained in future.

Points to remember while choosing ELSS Scheme, Short term Returns May be Misguiding so always look for 5-10 year performance of a fund.

Better returns in comparison to other tax saving instruments

Best debt tax saving instrument is PPF – it gives 8% tax free return so let’s compare PPF & ELSS

Current Value of Rs. 70,000 invested on 1 Jan every year from 2000-2010 in PPF and ELSS schemes โ€“ Returns as on 30th Nov 2010


Can you compare Sachin Tendulkar with Tatenda Taibu? So how can I compare ULIP with ELSS.

Systematic Investment Plan (SIP) in ELSS

In SIP, you invest a certain amount each month in a fund. It’s an effective way of investing in ELSS as the concept of rupee cost averaging and the power of compounding works well. Even if you have done your tax planning for this year start this from 1st April 2011.

SIP ELSS Performance

  • Investment Rs 5000 per month
  • Time – Last 74 Months
  • Total Investment – Rs 370000
1 Canara Robeco Equity Taxsaver – Dividend 787503 24.94 417503 1336877
2 HDFC Taxsaver – Growth 726664 22.25 356664 1365076
3 ICICI Prudential Taxplan – Growth 684921 20.28 314921 1070301
4 Sundaram Taxsaver – Growth 683811 20.23 313811 1178489
5 HDFC Long Termย  Advantage Growth 665961 19.35 295961 922003
6 SBI Tax Gain Scheme 93 – Growth 661877 19.14 291877 1469557
7 Birla Sun Life Tax Relief 96 – Dividend 630300 17.52 260300 825569
8 Principal Personal Taxsaver 616625 16.8 246625 807317
9 ING Tax Saving Fund – Growth 575719 14.53 205719 728567
10 Birla Sun Life Tax Plan – Dividend 572173 14.33 202173 785124
11 PRINCIPAL Tax Savings Fund 537488 12.26 167488 687264

Note: In new Direct Tax Code ELSS is not considered as a tax saving instrument – so use it before it’s actually announced.

Always remember “Tax Saving should be result of your Investment planning and not vice versa”

Source & Credit: Some of the Data/chart used in the article are taken from NJ India Invest, Mutual Funds India & Value Research.ย 
What’s your experience with ELSS??
This article was published on TFL - 2012
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Leave a Comment

  • Radhika April 8, 2015, 5:37 pm

    Very good informative article

  • shrikant April 11, 2015, 11:33 am

    Dear Hemant,

    ELSS this article is very useful even for retirees, but it lacks updation since the
    above data is only upto Nov-2010. If u update the same it will reveal the fantastic
    info for readers. As I have gone thru very updated date upto 2014, hence request
    on behalf of the readers and well wishers.

  • Prasanth reddy April 14, 2015, 8:13 pm

    Dear Hemanth,

    Good work.
    Updated information will be more helpful..

  • sankar April 22, 2015, 4:01 pm

    Thanks for the prompt reply. Is ElSS & other Mutual Fund investment tagged to Demat a/c if one already a Demat a/c holder ?

  • natarajan April 29, 2015, 11:28 am

    kindly update ppf max. investment Rs.1,50,000.rate of 8.7%.
    with kind regards,

    • Vikas Agarwal April 29, 2015, 11:32 am

      Dear Natarajan,

      This is an old article – just to share the concept.