Investing your hard-earned money wisely is a crucial aspect of financial planning. One such avenue that has gained significant popularity among Indian investors is ELSS funds. Equity Linked Saving Schemes (ELSS) provide a unique opportunity to save taxes and earn potentially higher returns than traditional tax-saving instruments.
What are ELSS funds?
ELSS funds are a mutual fund scheme that primarily invests in equity and equity-related instruments. They are designed to give investors the dual benefit of potential capital appreciation through equity investments and tax savings under Section 80C of the Income Tax Act 1961. ELSS funds have a lock-in period of three years, which means you cannot redeem your investment before completing this period.
Features of ELSS mutual funds:
Tax benefits: ELSS funds offer tax benefits under Section 80C of the Income Tax Act.
Potential for high returns: ELSS funds predominantly invest in equities, so they can deliver higher returns than other tax-saving investment options like fixed deposits and Public Provident Fund (PPF).
Diversification: These funds invest in a diversified portfolio of stocks across various sectors, reducing the risk of investing in individual stocks.
Flexibility: ELSS funds typically have a lock-in period of three years, which is shorter than other tax-saving investments like the National Savings Certificate (NSC) and Employee Provident Fund (EPF).
Advantages of ELSS mutual funds:
Wealth creation: These funds have the potential to generate substantial wealth over the long term due to their exposure to equity markets.
Tax efficiency: ELSS funds offer tax benefits not only on the investment amount but also on the returns earned. Long-term capital gains (LTCG) from ELSS funds are tax-free, up to Rs. 1 lakh in a financial year.
Systematic investment: ELSS funds provide the option of investing through Systematic Investment Plans (SIPs), allowing investors to invest small amounts regularly and benefit from rupee-cost averaging.
Professional management: ELSS funds are managed by experienced fund managers who analyze market trends and invest in suitable stocks, reducing the burden of stock selection from individual investors.
How to invest in ELSS funds?
Step 2: Research and shortlist ELSS funds based on their historical performance, fund manager expertise, expense ratio, and portfolio composition.
Step 3: Open a mutual fund investment account with a reputable fund house or a trusted online platform.
Step 4: Complete the Know Your Customer (KYC) requirements by submitting relevant documents such as identity proof, address proof, and PAN card.
Step 5: Once your account is activated, choose the desired ELSS fund(s) and select the investment mode (lump sum or SIP).
Step 6: Provide the necessary details, such as investment amount, duration, and frequency (for SIPs).
Step 7: Invest either through net banking, cheque, or electronic transfer.
Step 8: Monitor your investments periodically but avoid making decisions based on short-term market fluctuations.
Step 9: Utilize the three-year lock-in period to stay invested and allow your investments to grow.
Step 10: When the lock-in period ends, evaluate the performance of your ELSS fund(s) and consider reinvesting or redeeming based on your financial goals.
To wrap up
ELSS funds can be smart for investors looking to save taxes while generating long-term wealth. Start investing in ELSS funds today and take a step closer to achieving your financial aspirations.