ELSS’s Twin benefit of Tax deduction and Capital appreciation
Mumbai: Indian retail investors have a wide range of options when it comes to tax saving instruments. These include the likes of Provident Fund (PPF), Tax-saving fixed deposits, National Savings Certificate (NSC), Equity-linked Saving Scheme (ELSS) in order to claim a deduction under Section 80C of the Indian Income Tax Act, 1961. But within these options, ELSS which is a tax saving mutual fund stands out as one of the best offering.
To begin with, ELSS is a category of mutual funds which primarily invests in equity and equity related instruments and many of these have a track record of nearly two decades. Through investments in this instrument one can avail a tax deduction of up to Rs1,50,000 annually which translates into a saving of Rs. 46,800 for an investor with an income of 12 lakh per annum.
Within the many funds available today in ELSS category, ICICI Prudential Long Term Equity Fund (Tax Saving) is an excellent choice. One a 10-year basis, the fund has emerged as the best performing Scheme among the ELSS category, generating a CAGR of 19.53% as against 14.31% of Nifty 50 index. Since its launch the Fund has delivered an impressive 20.36% CAGR return. An SIP of Rs. 10,000 per month would have grown to 4.7 lakhs in 3 year, 14.3 lakhs in 7 years, 27.3 lakhs in 10 years and 67.3 lakhs in 15 years.
As of October 31, 2018, the fund has a diversified portfolio of 38 stocks and is overweight on sectors like Pharmaceuticals, Healthcare, Auto and Power and is underweight on Banks & Finance, Software. ELSS provides an investor with the twin benefit of tax deduction and capital appreciation. Among all the tax-saving options under Section 80C, ELSS offers the shortest lock-in period of three years, giving an investor an added advantage.
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