ELSS (also known as Tax Saving Mutual Fund)<\/a> <\/strong>is a sub-category of equity mutual funds that offers investors the opportunity to create long-term wealth and also save tax. Being market-linked, the returns on ELSS (Tax Saving Mutual Funds) are not fixed and depend on how the underlying securities in the portfolio perform. Investors can consider the Systematic Investment Plan (SIP)<\/a> mode while investing in Tax Saving Mutual Funds to mitigate the impact of market volatility and benefit from the power compounding of wealth.<\/p>\n\n\n\n

The ELSS (Tax Saving Mutual Fund) category comprises 24 schemes that have a track record of at least 10 years. In the last 10 years, all schemes in the category generated double-digit growth; of these, ten ELSS (Tax Saving Mutual Funds) generated SIP returns of 15% or more. The top-performing SIP generated XIRR of 24% during this period.<\/p>\n\n\n\n

[Read: <\/strong>3 Best ELSS to Invest in 2023 – Top Performing Tax Saving Mutual Funds in India<\/a>]<\/p>\n\n\n\n

What are ELSS (Tax Saving Mutual Funds)?<\/strong><\/p>\n\n\n\n

SEBI defines ELSS (Tax Saving Mutual Funds) as equity-oriented mutual funds that invest a minimum of 80% of their total assets in equity and equity-related instruments and come with a mandatory lock-in period of 3 years along with tax benefits. In case of investment via the SIP mode, each instalment is subject to a lock-in of three years.<\/p>\n\n\n\n

These funds have the flexibility to invest across market capitalisation and sectors. Accordingly, most ELSS hold a diversified portfolio and are usually market cap and sector agnostic. ELSS may follow the growth style or value style of investing or a combination of both.<\/p>\n\n\n\n

Investing in ELSS offers investors the triple advantage of tax-saving (under Section 80C of the Income Tax), wealth creation through equities, and the lowest lock-in period compared to other tax-saving instruments.<\/p>\n\n\n\n

ELSS has the potential to reap higher returns for its investors, compared to other popular tax-saving instruments such as the National Saving Certificate, Tax Saving FD, Public Provident Fund, etc.<\/p>\n\n\n\n

[Read: <\/strong>Tax Saving Mutual Funds: Who Should Invest, How to Invest, and the Best Ones to Invest<\/a>]<\/p>\n\n\n\n

[Read: <\/strong>5 Reasons to Invest in ELSS (Tax Saving Mutual Funds)<\/a>]<\/p>\n\n\n\n

ELSS (Tax Saving Mutual Fund) category average SIP returns over different time frames<\/em><\/strong><\/p>\n\n\n\n

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Past performance is not an indicator of future returns.
Data as of September 01, 2023
Returns are XIRR in percentage
Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN)\u00a0<\/p>\n\n\n\n

What is an SIP?<\/strong><\/p>\n\n\n\n

The SIP mode allows mutual fund investors to invest a certain fixed sum regularly over the long term in the scheme\/s of their choice. This helps develop a financial discipline – the key to successful investing. It also enables averaging of investment costs as more units are added when the equity markets are trading low and fewer units when the markets are scaling up. This feature enhances the power of compounding, allowing the investors’ wealth to grow leaps and bounds over the long term. The tool used to calculate SIP returns is known as XIRR (Extended Internal Rate of Return).<\/p>\n\n\n\n

[Read: <\/strong>5 Key Benefits of Investing in Mutual Funds via SIP<\/a>]<\/p>\n\n\n\n

[Read:\u00a0<\/strong>What is XIRR in Mutual Funds? And How to Calculate it?<\/a>]<\/p>\n\n\n\n