Investing in Equity Linked Savings Schemes (ELSS) funds is a smart way to grow your wealth while enjoying tax benefits in India. ELSS funds are a category of mutual funds that combine the potential for high returns with the advantage of tax savings under Section 80C of the Income Tax Act. This article will help you learn “How to invest in ELSS Mutual Funds” and ensure both financial growth and tax efficiency.
High ReturnsGet Returns as high as 17%*
Zero Capital Gains taxunlike 10% in Mutual Funds
Save upto Rs 46,800in Tax under section 80 C
The full form of ELSS is Equity Linked Savings Scheme. This type of mutual fund investment plan in India offers tax benefits under Section 80C of the Income Tax Act, 1961.
ELSS mutual funds primarily invest in equities and equity-related instruments. This makes them the best investment options for tax-saving and wealth-building.
Follow the steps mentioned below to start investing in an Equity Linked Savings Scheme (ELSS):
Choose a Fund: Select an ELSS fund based on your financial goals and risk tolerance.
KYC Process: Complete the KYC (Know Your Customer) formalities with a registered mutual fund distributor or online platform.
Fund Selection: Pick the specific ELSS fund in which you want to invest.
Investment Amount: Decide on the investment amount and payment method, either lump sum or SIP.
Submit Documents: Provide necessary documents, such as PAN card and Aadhar card.
Fund Application: Fill out the application form for the chosen ELSS fund.
Payment: Invest the desired amount through a bank transfer or online payment.
Lock-in Period: Understand and acknowledge the 3-year lock-in period for ELSS investments.
Monitor Investments: Keep track of your investments and review them periodically.
Redeem or Stay Invested: After the lock-in period, decide whether to redeem or continue your investment.
The key features of Equity Linked Savings Scheme (ELSS) mutual funds are listed below:
Types of ELSS Investment: Under ELSS mutual funds, you have two options for investment-
Dividend Option: During the lock-in period of 3 years, a fixed amount is paid in instalments to you
Growth Option: A lump-sum amount is paid to you after the completion of the lock-in period
Tax Saving: ELSS investments are eligible for tax deduction under Section 80C of the Income Tax Act, 1961, up to a limit of Rs. 1.5 lakhs per annum.
Equity Exposure: ELSS mutual funds invest at least 80% of their assets in equity and equity-related instruments. This gives you the potential to earn higher returns over the long term.
Lock-in Period: These tax-saving mutual funds have a mandatory lock-in period of three years. This means that you cannot withdraw your money from the ELSS mutual fund before the completion of three years.
Diversification: ELSS funds invest in a diversified portfolio of equity stocks across different sectors and market capitalizations. This helps to reduce risk and improve the chances of generating better returns.
Liquidity: These are open-ended mutual fund schemes. This means that you can redeem your units at any time after the completion of the lock-in period.
Systematic Investment Plan (SIP): You can also opt for a Systematic Investment Plan (SIP) to make an investment in the ELSS mutual fund scheme. SIP allows you to make a disciplined investment in ELSS mutual funds and gain long-term returns on investment. You can also use a SIP Calculator to estimate your returns from the SIP plan.
ELSS offers several advantages that make it an attractive investment choice. Some of the benefits of the ELSS scheme are as follows:
ELSS has a relatively short lock-in period of just 3 years in comparison to the National Savings Certificate (NSC) and Public Provident Fund (PPF), which have lock-in periods of 6 and 15 years, respectively. This flexibility makes it suitable for short-term investors and is notably shorter than most other mutual fund options.
Investments in ELSS, up to Rs. 1.5 lakhs qualify for tax benefits under Section 80C of the Income Tax Act, 1961. Additionally, ELSS offers the potential for capital growth, which enhances the overall tax advantage for you.
ELSS predominantly invests in equity-oriented instruments, providing the potential for substantial returns, especially when the stock market performs well. A well-constructed portfolio can yield significant returns when the economy is on the rise.
ELSS offers you with two fund options: growth fund and dividend fund. In the growth fund option, you receive a lump-sum amount after the 3-year lock-in period. Alternatively, in the dividend option, fixed amounts are paid to you in instalments during the lock-in period.
ELSS has a low minimum investment requirement, starting as low as Rs. 500. This accessibility makes it a viable option when you have lower taxable income or when you are looking to start building your portfolios as a young investor.
|Nature of Investment||Equity-oriented mutual fund||Combination of insurance and investment funds||Mix of equity, fixed deposits, and liquid funds|
|Lock-in Period||3 years||5 years||Until retirement or 60 years (whichever is earlier)|
|Tax Benefits||Tax deduction under Section 80C||Tax benefits under Sections 80C and 10(10D)||Tax benefits under Sections 80CCD(1), 80CCD(2), and 80CCD(1B)|
|Risk Level||High||Medium to High||Low to Medium|
|Flexibility||Liquidity after the lock-in period||Partial withdrawals after the lock-in period||Partial withdrawals allowed, but with restrictions|
|Returns||Market-linked, potential for high returns||Variable, depends on market performance and insurance costs||Market-linked, returns depend on the fund performance|
|Suitability||Investors seeking tax-saving with high risk tolerance||Individuals looking for a combination of insurance and investment||Long-term retirement planning with moderate risk tolerance|
|Liquidity||Locked-in for 3 years||Partial withdrawals allowed after lock-in||Allowed with certain conditions after 3 years of NPS account|
|Market Dependency||Depends on equity market||Linked to market performance||Linked to market performance|
|Nature of Investment||Equity-oriented mutual fund||Combination of insurance and investment||Mix of equity, fixed deposits, and liquid funds|
Investing in ELSS mutual funds offers a tax-efficient and potentially lucrative opportunity to build wealth while saving on taxes. By investing in ELSS funds through SIPs, you can benefit from the power of equities while enjoying the benefits of tax deductions under Section 80C of the Income Tax Act. It is essential to research and select ELSS funds that align with your risk tolerance and financial objectives, maintain a long-term perspective, and stay informed about market trends to make informed investment decisions.
Choose an ELSS fund. There are many different ELSS funds available in India. You can compare different funds and choose one that best suits your investment needs and risk appetite.
Open an investment account with a mutual fund company or distributor.
Complete the KYC (Know Your Customer) process.
Place your order to invest in the chosen ELSS fund.
Log in to your account and select the ELSS fund you want to invest in.
Enter the amount you want to invest and choose your payment mode.
Review and confirm your transaction.
Choose an ELSS fund that matches your risk tolerance
Know your investment objectives
Look at the fund's past performance to get an idea of how it has performed in different market conditions.
Also, look at the fund manager's track record
Check the expense ratio
Your risk appetite
Your investment horizon
The fund's performance
The fund's expense ratio
The fund manager's track record
Open an account with a mutual fund company. You can do this online or in person.
Once you have opened an account, you will need to choose the ELSS fund(s) that you want to invest in.
Decide how much you want to invest and whether you want to invest as a lump sum or through a systematic investment plan (SIP).
Enter your payment details and complete the investment process.
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
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