Equity Linked Saving Schemes (ELSS) are a special type of mutual fund that helps investors save tax under Section 80C of the Income Tax Act, 1961 while building wealth over the long term. With the tax-saving season here, now is the perfect time to start investing in ELSS funds that aim to offer attractive returns along with tax benefits. In this blog, we discuss the benefits of investing in ELSS Tax Saver Funds.

What is an ELSS Fund?

ELSS, or Equity Linked Savings Scheme, is an equity mutual fund with a compulsory lock-in period of 3 years. As per Income Tax guidelines in India, investments made in ELSS up to Rs. 1.5 lakhs qualify for tax deductions under Section 80C in a financial year.

Apart from the tax benefits, an ELSS tax saving fund also aims to deliver high inflation-adjusted returns over long investment horizons as the underlying portfolio comprises diversified equity investments. The lock-in period imposed by the tax authorities aids in wealth creation by ensuring investors stay invested for sufficiently long periods to benefit from the high compounding effect in equity markets.

Key Benefits of Investing in ELSS Tax Saving Funds

Here are some of the major benefits of investing in ELSS mutual funds:

• Tax Savings under Section 80C: The prime benefit of investing in ELSS is that it offers tax deductions up to Rs. 1.5 lakhs in a financial year under the prescribed tax-saving investments limit of Section 80C.
• Wealth Creation: Since ELSS invests in equity, it has the potential to deliver inflation-beating returns of 12-15% over long periods of 5 years or more. This helps in significant wealth creation over time.
• Lowest Lock-in: The lock-in period in ELSS is only 3 years, compared to 5-7 years for tax-saving bank FDs or 15-20 years for traditional insurance policies. The shorter lock-in allows investors to switch investments to achieve life goals.
• Flexibility: Investors have the flexibility to invest either in a lumpsum or through SIPs in ELSS. There is no cap on the investment amount in a year. This makes goal-based investing convenient.
• Professional Management: Investments are managed by experienced fund managers who have the expertise to navigate various market cycles and deliver risk-adjusted returns.

Why Consider Bandhan ELSS Tax Saver Fund?

Bandhan ELSS Tax Saver Fund is one of the top-performing ELSS mutual funds that aim to generate long-term capital growth from a diversified equity portfolio. With a stellar track record across market cycles, some of the key highlights of this fund are:

Strong Long Term Performance

• Delivered 20.84.% annualised returns over the past 5 years as on 31st January, 2024
• Outperformed benchmark and category across 1-year, 3-year, 5-year and since inception periods

Diversified Portfolio Across Market Caps

• A diversified portfolio of 50-60 stocks across market capitalisation levels – large, mid and small caps

Low Expense Ratio

• The competitive expense ratio of 1.76% (regular growth) as on 31st January, 2024

Minimum Investment

• Low minimum investment amount of Rs 500 per month or one-time

Clearly, Bandhan ELSS Tax Saver Fund ticks all the right boxes for investors seeking tax savings while creating long-term equity wealth.

How Much to Invest in ELSS Tax Saving Funds?

Based on your tax slab, financial goals and risk appetite, you can consider investing up to Rs 1.5 lakhs in ELSS funds to claim deductions under Section 80C. Those in higher tax brackets can especially benefit by offsetting tax liability today while also growing wealth over the long run.

Here is our recommended investment approach:

• Invest at least 50% of your total 80C limit with a target of Rs 75,000 to Rs 1.5 lakhs if savings permit.
• Start early, ideally in your 20s, so that you have a longer runway to accumulate wealth.
• Adopt the SIP route by investing every month for goal-based wealth creation.
• Top up investments to max out 80C in tax-saving season.

However, consult your financial advisor to determine the right ELSS investment amount tailored to your financial situation and goals.

Conclusion

ELSS funds like Bandhan ELSS Tax Saver Fund offer dual benefits of tax savings and wealth creation, making them a potentially suitable tax-saving instrument for smart investors. By starting your ELSS journey today with as little as Rs 500 per month, you can kickstart your wealth creation journey in a tax-efficient manner. Consult your tax advisor and financial planner to include ELSS tax saving fund as a key part of your investment portfolio. Invest smart, save tax through ELSS and accumulate long-term wealth.