Ever feel like the taxman is taking a bigger and bigger bite out of your hard-earned income?  We've all been there. But what if there was a secret weapon to fight back and save some serious cash?

Equity Linked Savings Scheme (ELSS) Mutual Funds are the ultimate tax-saving tool for NRIs like you! With ELSS, you can not only grow your wealth but also claim hefty tax deductions –  potentially saving you lakhs of rupees!

Want to know how? Keep reading!

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What are Equity Linked Savings Scheme (ELSS) Mutual Funds?

ELSS mutual funds are diversified equity mutual funds. These funds invest your funds across a basket of securities, giving you the potential for high returns. But that's not all! The Income Tax Act offers a special tax benefit for ELSS investors. 

Under Section 80C of the Income Tax Act, 1961, you can claim a deduction of up to Rs 1.5 lakhs on your taxable income. Yes, NRIs are also eligible for this deduction.

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Top 10 ELSS Mutual Funds for NRIs

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Features of ELSS Mutual Funds

• Tax Benefits: As mentioned earlier, you can claim a deduction of up to Rs 1.5 lakhs under Section 80C.
• Relatively Short Lock-in Period: Compared to other tax-saving instruments (like tax savings FD, National Pension Scheme, etc.), ELSS has a lock-in period of just 3 years.
• Mode of investment: You can invest a lump sum or regularly through a Systematic Investment Plan (SIP) to benefit from rupee-cost averaging.
• Low Minimum Investment: The minimum investment amount in ELSS mutual funds is generally as low as Rs. 500 (for SIPs).
• High Growth Potential: ELSS invests in equities, which have the potential for high returns compared to other tax-saving options - FDs, NPS, etc.‍
• Professional Management: Experienced fund managers manage your investment, taking care of research, selection, and portfolio management.
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Things to Consider Before Investing in Tax Saving Mutual Fund in India

• Investment Horizon: ELSS is best suited for long-term goals (5+ years) as the stock market can be volatile in the short term.
• Risk Tolerance: ELSS is an equity-based investment, so it carries inherent market risk. As these are high-risk investments, consider your risk appetite before investing.
• Investment Goals: Align your ELSS investment with your long-term financial goals, like retirement planning.
• Fund Performance: Before selecting an ELSS fund, evaluate its past performance, fund manager’s expertise, and expense ratio.‍
• Lock-in Period: Note the lock-in period for ELSS funds - three years. For lump sum investments, withdrawals are permitted after completing three years. Similarly, each SIP installment also has its own lock-in period (of three years), and you can withdraw the investments only once this period is fulfilled.

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Taxation of ELSS Mutual Funds

While investments in ELSS funds are tax-exempt, capital gains are taxed. As ELSS funds are equity schemes, they are taxed based on the investment holding period.

Since these funds have a three-year lock-in period, they attract long-term capital gains tax. However, long-term capital gains up to Rs 1 lakh are tax-exempt. 

Capital gains over and above Rs 1 lakh are taxed at 10%.

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Who Should Invest in Indian Tax Saving Mutual Funds?

ELSS is a great option for NRIs with:

• Income in India and seeking to optimise their tax savings while investing in Indian markets. And are filing taxes as per the old tax regime. The new tax regime doesn’t make any provision for tax-saving investments, or deductions. 
• A long-term investment horizon and a moderate to high-risk appetite.
• A desire to save taxes and grow their wealth simultaneously by investing in a diversified portfolio with exposure to equities.

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How to Invest in ELSS Mutual Funds in India Through iNRI?

Investing in ELSS funds through iNRI is simpler than you think! Follow these steps:

• Login/ Sign Up here. 

Onboard in just 5 steps -

• Know if you’re KYC (Know Your Customer) ready (if you are not KYC compliant, you can complete your KYC through iNRI)
• Create your investor profile
• Add nominee details
• Add your NRE/ NRO bank details
• Get ready to invest
• Select the top ELSS funds and add to the cart to invest.

With iNRI, you can invest in mutual funds without a demat account. Thus, the entire process of investing is completely online.

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Top ELSS Mutual Funds: Frequently Asked Questions (FAQs)

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If I invest Rs.2 lakh in a tax-saving mutual fund in a year, can I claim tax benefits for the entire investment?

No, you can only avail of income tax benefits on investments up to Rs 1.5 lakh in ELSS mutual funds.

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Can I withdraw my investment during the lock-in period?

No, withdrawals are not permitted during the lock-in period. Once invested in an ELSS, funds cannot be withdrawn until the 3-year lock-in period expires.

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What happens to ELSS after 3 years?

After the mandatory 3-year lock-in period, you can redeem your units at any time or continue to stay invested.

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Is ELSS tax-free for NRIs?

ELSS investments up to Rs 1.5 lakhs are tax exempted for NRIs and Overseas Citizens of India (OCIs). However, the capital gains above Rs 1 lakh are taxable at 10%.

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Which ELSS is best to invest in 2024?

Selecting the best ELSS to invest in depends on various factors, such as your goals, risk tolerance, investment horizon, and the fund's performance. However, past performance does not guarantee future returns. 

Thus, you need to pick funds that consistently outperform their benchmark and category over the years. Before making a decision, it's advisable to conduct thorough research, consult with a financial advisor, and consider factors like fund management, expense ratio, and investment philosophy.

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Should I invest in 2 ELSS funds?

Investing in multiple ELSS funds can diversify your investment portfolio and spread risk, but ensuring that each fund aligns with your investment objectives and risk profile is essential.

Diversification can provide benefits, but avoiding over-diversification is crucial, which may dilute potential returns. Evaluate the performance, investment strategy, and holdings overlap between the two funds before deciding. 

If you need help with your India or local taxes, you can email us at tax@goinri.com. We have a network of CPAs and CAs curated for NRIs and OCIs to help with cross-border taxes.

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