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

You can claim income tax deduction up to Rs. 1.50 lakh under section 80C for investments made in tax saver mutual fund schemes, known as ELSS (Equity Linked Savings Scheme) Investment in ELSS is closed 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 opt instead Systematic Investment Plan (SIP) To invest in ELSS. The profit on redemption of ELSS units is completely tax free up to Rs. 1 lakh in a year with long-term capital gains on listed shares and other equity schemes and thereafter without the benefit of indexation are taxed at a flat rate of 10%.

Tax saver scheme and FMP are not comparable investment products. As against ELSS, FMPs are basically debt schemes of mutual funds which have a fixed tenure and hence a fixed maturity date. If invested for FMPs with a maturity period of more than 36 months, FMPs are tax efficient as compared to bank fixed deposits due to the benefits of indexation available and the concessional long-term capital gains tax rate. Please note that there is no tax benefit available for investing in FMPs unlike ELSS scheme.

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

Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.