ELSS: Smart way to save tax; here's how to pick a top performing one

Tax planning forms an indispensable part of one’s financial plans. Under Section 80C of the Income Tax Act 1961, you can claim deductions of upto Rs 1.5L and reduce your tax liability. So, to save on taxes, you just need to invest your money in investments eligible under 80C. Equity Linked Savings Scheme (ELSS) is eligible under section 80C.

Out of all these investments, ELSS tends to be the most popular and most efficient tax-saving instrument.
How ELSS work
ELSS is a type of equity diversified fund, which invests majority of fund’s assets in equity shares of companies. The fund manager maintains a well-diversified portfolio by allocating resources across sectors, market capitalisation and industries. The Net Asset Value (NAV), or the intrinsic value of one unit of the fund, fluctuates with ups and downs of the underlying benchmark and overall economic factors.

The investment mechanism of ELSS is such that fund return tend to get affected by the overall movements of the equity markets. The objective is to keep the portfolio returns in line with expectations and not get it affected by extreme price movements in one of the industry’s segments. However, the fund attempts to generate enough returns which results in capital appreciation and tax benefits over the long-term.