An ELSS mutual fund or an equity-linked savings scheme is a tax-saving mutual fund which is eligible for tax deductions according to Section 80C of the Indian Income Tax Act, 1961. It is possible to claim a tax rebate of up to ₹1,50,000 according to the provisions of the act. This might help you save approximately₹46,800 a year in taxes. These schemes have a lock-in period of just three years, which is one of the shortest among Section 80C investments.
What are the features of these funds?
Here are a few key features of ELSS mutual funds:
- These funds offer tax deductions of approximately₹1,50,000 a year. You could enjoy tax deductions under the provisions of Section 80C
- Please note that three years is the lock-in period forELSS funds.Please note that there are no provisions to redeem your investments prematurely
- ELSS mutual fund is a tax-saving investment option that hasthe potential to offer inflation-beating returns
- The ELSS portfolio mostly consists of equities. However, they have some exposure towards fixed-income securities too
- There are benefits to investing in ELSS funds.The said benefits are wealth creation and tax deductions
- There is no upper limit to investing in ELSS.However, check the minimum amount required for investment. It varies across AMCs
How to invest in ELSS?
You need to be mutual fund KYC compliant to invest in an equity-linked savings scheme. If you are KYC compliant, you can purchase through both online and offline means.
Online mode:
Youcan complete KYC online from any AMC website or the RTA, i.e., (registrar and transfer agent) website if your KYC is not done. Online KYC is simple, and you just need a PAN Card and address proof.Documents such as Aadhar cards, passports, utility bills or any Government ID are examples of address proof. Sometimes, you can opt for a video KYC. This can help incapturing your photograph andvalidating your documents.
Offline mode:
Contact anAMCthat can help you with two things, filling up the form and guiding youon how to invest in ELSS funds. Theyshould also help you in completing KYC if you do not compliant.
You can invest in ELSS either through SIPs or lumpsum after purchasing the mutual fund scheme. However, you should not blindly invest in this scheme.
Factors to consider before investing in ELSS?
These are the factors before investing in ELSS:
- Investment plan:
There are several other investment options available under Section 80C of the Indian Income Tax Act, 1961 if saving tax is your sole purpose. Please ensure that you havealready formulated an investment plan to achieve your financial goals before investing in ELSS. Tax planning should be a part of this plan. You can use ELSS funds to achieve your long-term goals.
- Investment mode:
Like every other mutual fund variant there are two investment modes. Lumpsum and SIP mode. Investing in ELSS through a systematic investment plan (SIP) can help in averaging your buying cost per unit. Over time, increase the SIP investment amount through a facility referred to as step-up. Use the mutual fund calculator to determine the new investment amount.
- Investment Horizon:
Working professionals prefer investing in ELSS funds because of its short lock-in period of 3 years. This can be counterproductive since equity investments take approximately 5-7 years to stabilize. Short-term investment horizon should be avoided as equity investmentsare volatile.
ELSS is a tax-saving investment that provides you with the opportunity to earn high returns.Investing in these funds is a prudent way of planning your future while saving on taxes at the same time.
