Equity Linked Saving Scheme is an open ended fund that have no restriction on number of shares issued and are diversified by allocating in different asset classes which reduces risk of the portfolio by mitigating losses offered through various mutual fund schemes.

Investors invest in Equity Linked Saving Scheme (ELSS) to save tax under section 80C of tax law. However one can use this ELSS to build their financial goals if invested for longer duration.

The primary objective of ELSS is to grow capital for long term and to save tax. The growth of capital can be achieved by the power of compounding which works only in longer duration when reinvestment is made at regular intervals.

However while investing in ELSS one can avail a maximum deduction of  Rs. 1.5 lakh assuming falling under maximum tax slab. These schemes have well past performance track record and least lock in period. The major aim should be of investing and creating wealth rather than saving tax.

Further, if Dividend payout scheme is chosen for investment  it will help earn tax free payout during a financial year before maturity of the scheme. ELSS also gives good liquidity since the lock in period is just for 3 years as compared to pension provident fund where the lock in period is 15 years.

 If investment is made in Systematic Investment Plan (SIP) in ELSS which provides disciplined invests and reign better control on tax saving investment and future wealth creations.

Top five ELSS schemes are:

  • Axis Long Term Equity Fund.
  • Birla Sun Life Tax Relief 96.
  • Franklin India Tax shield Fund.
  • ICICI Pru Long Term Equity Fund.
  • DSP Blackrock Tax Saver Fund.
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