what is the difference between equilty mfs and ELSS? why ELSS will give you tax benefits?



In Equity Linked Savings Schemes how much % is invested in stocks? I want a tax benefit and i will take risk. ie i will be happy to invest in a fund which gives tax benefit and which invests 100% in stocks.
Is there any fund?

what is the difference between equilty mfs and ELSS? why ELSS will give you tax benefits?
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3 Replies to “what is the difference between equilty mfs and ELSS? why ELSS will give you tax benefits?”

  1. All ELSS have the provision for invetment in equity to 100%. But it is not practicable to stay invested to 100% everytime. ELSS are pure equity schemes and provide you the tax benefits.


  2. Under section 80, Indians can invest upto Rs 1 lakh in ELSS (Equity Linked Saving Scheme, also commonly known as Tax Saver schemes) funds per year/per individual. The amount invested in a ELSS/Tax Saver scheme is Tax deductible on your tax return.

    E.g.,

    Say you are a male and earned Rs 2 lakh. You invest Rs 1 lakh in a ELSS fund, such as HDFC Tax Saver fund.

    Your taxable income in this case would be: Rs 2 lakh – Rs 1 lakh = Rs 1 lakh.

    For a taxable income of Rs 1 lakh, there is ZERO tax.

    Had you “NOT” invested in the HDFC Tax Saver fund, then your taxes are

    Your taxable income in this case would be: Rs 2 lakh

    For a taxable income of Rs 1 lakh, there is a tax of Rs 15,000/-.

    Therefore, in this scenario, you save Rs 15,000/- in taxes by investing in a ELSS scheme.

    Now, what is the catch for investing in a ELSS scheme.

    (a) Your invested money is LOCKED for a period of 3 years. i.e., Once invested in a Tax Saver fund, your money cannot be taken out for a period of 3 years. But this is a blessing in disguise, because Tax Saver funds generally yield healthy returns during a 3 year period.

    (b) Except for the Pension plan funds which usually locks the money until the age of 58 or so, all ELSS schemes invest upto a 100% in equities/stocks. Therefore, inherently investing in a ELSS is risky.

    Comparing equity mutual fund and a tax saving one, I would say Tax saving funds generally perform better because there is less pressure on the Tax Saving fund manager to SELL during down markets for redemption to unit holders.

    With plain vanilla Equity MFs you could buy them today and dispose of them tomorrow – i.e., there is no time limit for redemption, except for exit loads. However with ELSS MF funds, there is a compulsory 3 YEAR lock in for Equity funds and a mandatory lock in up to the age of 58 years for Pension funds.

    Contrary to the popular theories, ELSS funds also comprises of Pension fund, such as Franklin Pension, which does not invest more than 50 to 60% in equities.


  3. ELSS is Equity Linked Savings Scheme, where invesor is eligible to get tax benefits U/s 80 C of Income Tax Act, 1961 upto Rs. 1 Lakh in a financial year. It has a lock in period of 3 years from the date of investment which is minimum among any tax saving instrument available in India & with the highest returns on investments. The fund manager selects value stocks to invest in ELSS which gives good returns in 3 years horizon.

    Equity mutual fund schemes are an open ended equity funds where investor can invest any time & exit any time i.e. without any lock in period.





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