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What are ELSS and are FMP better than ELSS? Please suggest top three ELSS

You can claim income tax deduction upto Rs. 1.50 lakh under Section 80 C for investments made in the tax saver mutual fund schemes popularly known as ELSS (Equity Linked Saving Schemes). The investment in ELSS is locked for three years. Since ELSS is basically an equity product, the returns are not assured and depend on the performance of the equity market in general and the scheme in particular during that period. I would advise you not to invest in ELSS at one go and rather opt for Systematic Investment Plan (SIP) to invest in an ELSS. The profits on redemption of ELSS units are fully tax exempt upto Rs. 1 lakh in a year along with long term capital gains on listed shares and other equity schemes and beyond which it gets taxed at flat rate of 10% without the benefit of indexation.

Tax saver scheme and FMP are not comparable investment products. Against ELSS, FMPs are basically debts schemes of mutual funds which have a fixed term and therefore fixed maturity date. FMPs are tax efficient as compared to bank fixed deposit due to benefit of indexation available and concessional long term capital gains tax rate in case the investment has been made for FMP with a maturity period of beyond 36 month. Please note there are no tax benefits available for making investments in FMP unlike in ELSS scheme.

Presently top three ELSS tax saver funds schemes are Mirae Asset Tax Saver Fund, IDFC Tax Advantage (ELSS) Fund and Axis Long Term Equity Fund based on performance of the scheme, asset under management and rating given by independent agencies.

Balwant Jain is a tax and investment expert and can be reached on and @jainbalwant on Twitter

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