Equity-linked savings scheme or ELSS is a tax saver mutual fund scheme where the investment is locked-in for three years. An income tax deduction of up to Rs 1.5 lakh can be claimed under Section 80C of the Income-tax Act (ITA), 1961.
Considering that ELSS is an equity product, the returns remain dependent on the overall performance of the equity market as well as the scheme invested in at that particular time.
An investor can look forward to investing in ELSS through a systematic investment plan (SIP). On redemption of ELSS units, the profits are completely tax-exempt up to Rs 1 lakh in a particular year along with long-term capital gains (LTCGs) on listed shares and other equity schemes. Anything beyond this is taxed at a flat rate of 10% and no indexation benefit is applicable.
On the other hand, fixed maturity plans (FMPs) are closed-end debt funds, which have a fixed term and a maturity date that remains predetermined.
In fact, ELSS and FMP remain non-comparable investment instruments. Basically, FMPs are debt schemes of mutual funds. It is possible to invest in an FMP only at the time of the initial offering period.
When compared with bank fixed deposits (FDs), FMPs remain tax efficient due to benefit of indexation. Also, concessional LTCGs rates are extended in case the investment in FMPs exceeds the maturity period of 36 months. However, there are no direct tax benefits as such for investing in FMPs.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.