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Equity Linked Saving Scheme: Is ELSS Investment Still A Good Option?

The government allows you to save tax legally. Why not make use of it? In this blog, we’ll help you understand the pros and cons of ELSS funds and compare them with other investment options like NPS, PPF, FDs, ULIPs, NSCs, etc. to help you know if ELSS mutual funds are still a good investment.
May 12, 2021

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Indian investors are faced with the classic dilemma of choosing between a tax saving scheme and a wealth creation scheme. There wasn’t a concrete way to do both in the past unless you were an HNI.

Investors had to choose from investments options like Tax Saving Fixed Deposits (FDs) that were already battling with falling interest rates and tough lock-ins.

However, apps like Cube Wealth have changed the game by helping Indian investors realise that they can in fact save tax and create wealth by investing in options ELSS funds. 

What Is An Equity Linked Saving Scheme (ELSS)?

An Equity Linked Saving Scheme (ELSS) fund is a tax saving investment option that allows you to claim a deduction of up to ₹1,50,000 in tax under Section 80C. 

ELSS funds carry a lock-in period of 3 years. That’s relatively low in comparison to other 80C investment schemes like NPS and Post Office Savings Schemes like PPF, RDs, NSC, and others. 

Furthermore, ELSS funds have been known to generate better returns than traditional investment schemes by investing in the Indian share market. The average ELSS returns range from 12 to 15%. 

Read this complete guide on Tax Saving Mutual Funds

What Are The Benefits Of An ELSS Investment?

1. Tax Deduction 

An ELSS investment allows you to claim a tax deduction under Section 80C of up to ₹1,50,000 per financial year. This results in tax savings of approximately ₹46,800. That’s the price of the latest OnePlus 9. 

If you’re wiser, you can invest that money in alternative assets like P2P lending or Asset Leasing that have a low minimum investment amount of ₹50,000 and generate predictable returns of 8.5-12%. 

2. Lucrative Returns

ELSS funds invest in solid Indian stocks that have a stellar track record. Furthermore, the investment decisions are made by an experienced fund manager who handles the investment strategy and execution. 

As a result, ELSS funds on Cube have been known to generate 12-15% returns in the medium to long term. Cube’s advisor, Wealth First, gives you access to only the best performing ELSS funds in India. 

Discover Best ELSS Funds Now

3. Short Lock-In Period

Your ELSS investment will be locked in for 3 years. It is designed for saving tax and creating wealth in a disciplined manner. The lock-in period is significantly lower than several other 80C investments. 

Moreover, it’s important to remember that you can hold on to your ELSS investment for more than 3 years. There are benefits to this as ELSS funds have historically generated 14-16% returns after 5+ years.

Join Cube For Free to invest in the best ELSS funds in India 

4. ELSS SIP

Allocating a fat chunk of your budget or income towards ELSS funds to hit the ₹1,50,000 mark may not be a viable option for many investors. But there is an alternative - a Systematic Investment Plan (SIP)

Cube’s ELSS SIPs allow you to invest a small portion of your income every month to reach the desired tax saving amount or wealth creation goal that you have in mind. 

In fact, Cube’s unique SuperSIP feature allows you to toggle, skip, or snooze ELSS SIPs. 

If you're thinking if investing, you can take the simple Risk Analysis Quiz on Cube to know which ELSS funds would suit your goals the most.  

ELSS Investment V/s NPS, PPF, FDs, ULIPs, NSCs

 

Investment

Lock-In (in years)

Risk

Returns

Minimum Investment Amount

ELSS Fund

3

Medium-High

12-15%

₹500

NPS

Till Retirement

Medium

8-10%

₹1000

PPF

15

Low

7.1%

₹500

FD

5

Low

4-6%

₹1000

ULIP

5

Medium-High

7-9%

₹1000

NSC

5

Low

6.8%

₹1000

ELSS Tax Benefits V/s Other Investment Tax Benefits

 

Investment 

Tax Benefit Under 80C

Tax Deductible Amount

Lock-in

Returns

Tax Efficiency

ELSS Funds

₹1,50,000

3-years

12-15%

⬆️

Tax Saving FDs

₹1,50,000

5 years

5.5-7.5%

PPF

₹1,50,000

15 years

7.1%

⬆️

NPS

₹1,50,000 + 

₹50,000 

Till Retirement

8-10%

🔽


Are ELSS Schemes Good Investment Options?

Investing in the best ELSS funds will give you the dual benefit of saving tax and creating long term wealth. However, the secret sauce lies in planning your tax-saving investments wisely.

There’s no use rushing into an investment just because you want to save tax. It has downsides like crippling the growth of your wealth. Thus, it’s important to choose ELSS funds that are right for you. 

Cube gives you access to market-beating mutual fund advice from Wealth First who handpick and curate a list of the best ELSS funds for Cube users. 

These ELSS funds have generated an average return of 12-15% over the medium to long term. Let your money grow while it’s locked in. Get the Cube Wealth App now to know more about the best ELSS funds.

Frequently Asked Question around ELSS Funds

1. How Much Should I Invest In An ELSS fund?

Ans. ₹1,50,000 is the maximum amount you can invest in ELSS funds per financial year. This will allow you to save approximately 46,800 in taxes. Thus, you must plan your ELSS fund investments based on your taxable income. 

2. What Are Tax Saving Investments With High Return?

Ans. ELSS funds are one of the most preferred tax-saving investments because they are also known to generate high returns by investing in stocks. The average ELSS returns over 3+ years range from 12-15%. 

3. Which Is Better ELSS Or SIP?

Ans. A Systematic Investment Plan (SIP) is a method of investing, not an investment itself. ELSS SIPs allow you to invest small chunks of money every month to build a tax saving, wealth creation corpus. 

Watch this video to know why you should invest using Cube Wealth


*Note: All facts & figures are accurate as of 12-05-2021. 



Shriram Shekhar
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.

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