Equity-Linked Savings Schemes (ELSS), also known as tax-saving mutual funds, have the potential for higher returns, and they also carry the added advantage of tax savings for investors. ELSS fund invests primarily in equity and equity-related instruments. As per SEBI norms, it is mandatory for an ELSS fund to invest at least 80% of the total funds in equity, while the remaining 20% can be invested in other assets.
ELSS mutual funds are quite popular among long-term investors due to their ability to give substantial returns alongside tax benefits. Under Section 80C of the Income Tax Act, ELSS funds allow tax deductions of up to Rs 1.5 lakh.
ELSS funds come with a mandatory three-year lock-in period. Although there’s no maximum limit for investment, you can start with as little as Rs 500, either through a lump sum investment or a Systematic Investment Plan (SIP). Here, we will review the top 5 ELSS funds and analyse their lump sum and SIP returns over the past 10 years, based on Value Research data.
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Quant ELSS Tax Saver Fund – Direct Plan
Benchmark: BSE 500 TRI
Riskometer level: Very high
Expense Ratio: 0.59%
10-year annualised return of fund: 20.88%
Benchmark’s annualised returns of 10 years: 13.86
Fund’s 10-year SIP returns: 23.65%
If someone had started an SIP of Rs 10,000 in Quant ELSS Tax Saver Fund – Direct Plan, the individual would have made a corpus of Rs 41.94 lakh over the last 10 years, with CAGR returns of 23.65%.
At the same time, a lump sum investment of Rs 1 lakh in this fund 10 years ago would have turned into Rs 6.66 lakh, with CAGR returns at 20.88%.
Bank of India ELSS Tax Saver Fund – Direct Plan
Benchmark: BSE 500 TRI
Riskometer level: Very high
Expense Ratio: 0.84%
10-year annualised return of fund: 17.55%
Benchmark’s annualised returns of 10 years: 13.86
Fund’s 10-year SIP returns (annualised): 20.42%
With this SIP returns, an investment of Rs 10,000 would have turned into a corpus of Rs 35.22 lakh.
A lump sum investment of Rs 1 lakh made 10 years ago would have turned to Rs 5 lakh, with CAGR returns at 17.55%.
JM ELSS Tax Saver Fund – Direct Plan
Benchmark: BSE 500 TRI
Riskometer level: Very high
Expense Ratio: 1.27%
10-year annualised return of fund: 17.01%
Benchmark’s annualised returns of 10 years: 13.86
Fund’s 10-year SIP returns (annualised): 19.79%
At this rate of SIP growth, a monthly investment of Rs 10,000 started 10 years back would have turned into a corpus of Rs 34.04 lakh.
A lump sum investment of Rs 1 lakh made 10 years ago would be now worth Rs 4.81 lakh, earning 17.01% annualised returns.
DSP ELSS Tax Saver Fund – Direct Plan
Benchmark: BSE 500 TRI
Riskometer level: Very high
Expense Ratio: 0.74%
10-year annualised return of fund: 16.72%
Benchmark’s annualised returns of 10 years: 13.86
Fund’s 10-year SIP returns (annualised): 19.01%
So if you were investing regularly an amount of Rs 10,000 per month in this fund, the corpus would have grown to Rs 32.79 lakh.
Similarly, a lump sum investment of Rs 1 lakh made 10 years ago in this ELSS fund would be worth now Rs 4.69 lakh, earning annualised returns of 16.72%.
Bandhan ELSS Tax Saver Fund – Direct Plan
Benchmark: BSE 500 TRI
Riskometer level: Very high
Expense Ratio: 0.66%
10-year annualised return of fund: 16.17%
Benchmark’s annualised returns of 10 years: 13.86
Fund’s 10-year SIP returns (annualised): 18.11%
An SIP investment of Rs 10,000 per month started 10 years ago would have grown to Rs 31 lakh.
Likewise, if someone invested Rs 1 lakh lump sum in this fund with 16.17% CAGR returns, the investor would have made a corpus of Rs 4.48 lakh after 10 years.
Investors must assess risk before investing in an ELSS fund
Though these 5 ELSS funds have given good returns in the last 10 years, it is not certain that their past returns will continue in the future. Like all equity mutual funds, ELSS funds also get directly impacted by the volatility in the stock market, due to which they are placed in the category of ‘Very High Risk’ on the riskometer. As an investor, it is important for you to assess your risk-taking ability before investing in such funds.
Tax treatment on investment in ELSS
Investment of up to Rs 1.5 lakh in a financial year in ELSS is eligible for tax benefits under Section 80C of the Income Tax Act, 1961. When the units are sold after the lock-in period of three years, the profit earned from it is considered as Long Term Capital Gain (LTCG). There is no tax on LTCG up to Rs 1.25 lakh in a financial year, but 12.5% LTCG tax is applicable on profits above this.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.