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Most Common Misconceptions About Tax Saving Mutual Funds (ELSS Mutual Funds)

Equity Linked Savings Schemes (ELSS) are widely known as a great tax-saving option. But there are some common misconceptions about this mutual fund category. Read on to know if you have fallen for any of these traps.

  1. ELSS Funds only save taxes

ELSS Funds help bring down your tax liabilities. True. ELSS Funds do only that. FALSE. 

This mutual fund category can be a great vehicle to achieve your wealth creation goals as well. These funds invest in equities which have the potential to generate growing returns in the long run.

  1. ELSS Funds have a shelf life of three years

A common misunderstanding about ELSS Funds is that you need to withdraw your investments from these funds after completion of three years. The lock-in period for these tax-saving mutual funds is definitely defined as three years. However, that refers to the minimum time frame for which you need to remain invested. After the completion of the lock-in period, you are free to remain invested for as long as you want. In fact, equity investments yield the optimum results in the long run. Hence, it is advisable to hold onto your ELSS Funds for a minimum period of five to seven years.

  1. All ELSS Funds have the same structure or composition

This is one bubble that we need to break. Other mutual fund categories have defined guidelines regarding allocation across market capitalization. However, ELSS Funds enjoy complete flexibility in this regard. Hence, some schemes in this category invest predominantly in large-caps, some have higher exposure towards mid and small caps while others adopt a balanced approach. Hence, it is important to understand the portfolio allocation of each scheme to check its alignment with your own risk appetite and financial goals.

  1. You have to continue with the same ELSS

ELSS Funds are not like an insurance policy wherein you need to continue paying your premium every year for the same policy to qualify for the tax deductions and policy coverage. You need not continue to invest in the same ELSS Fund every year. You can even invest in multiple ELSS Funds.

Way to invest in ELSS Funds?

There are two ways to invest in ELSS Fund Online and Offline. 

Investing in ELSS Fund online can be a highly rewarding process. Not only is it simple, quick and hassle-free, but when you invest in ELSS Fund online you get all the relevant information about various schemes under one roof. You can easily complete the e-KYC formalities with the help of an online portal and start your mutual fund journey with just a couple of clicks. 

For offline investments, you need to visit the branch of a fund house or R&T Agent to complete the formalities. 

Best Tax Saving ELSS Funds in India

Here are the ten best tax saving ELSS Funds that will give you savings along with good returns.

  • Canara Robeco Equity Tax Saver Fund
  • Quant Tax Plan
  • Axis Long Term Equity Fund
  • Invesco India Tax Plan
  • Kotak Tax Saver Fund
  • DSP Tax Saver Fund
  • BNP Paribus Long Term Equity Fund
  • Aditya Birla Sun Life Tax Relief 96 Fund
  • Tata India Tax Savings Fund
  • Motilal Oswal Long Term Equity Fund

To sum it up

ELSS Funds are one of the best tax-saving options available in the market. They have the shortest lock-in period, are flexible and have a history of generating superior returns. However, if you are thinking of these mutual funds as only a tax-saving option, you are not realizing the full worth of these gems. They offer a much wider range of benefits. Invest in any of the best tax saving ELSS Funds and your financial life is well-taken care of.


Published by Nidhi Mehra

I am blogger with 5 years of experience in writing articles and topics related to finance and funds

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