Investors are often on the lookout for good investment opportunities that can help them accumulate wealth, fetch regular and significant returns, and also help them save tax. This is because the more they can save on taxes, the more earnings they can take home. This is why tax planning becomes absolutely essential. Section 80C provides numerous tax benefits to investors with its varied tax-saving investments. Although these tax-saving investments offer tax deductions, they prove slightly incompetent when you take into account the lock-in period and the average returns provided by these investments. Individuals investing in mutual funds often shy away from mutual fund investments due to tax on mutual funds. Enter ELSS tax saving mutual funds, also known as Equity-linked Savings Scheme.
What are ELSS funds?
ELSS mutual funds are referred to as tax saving mutual funds, owing to their tax-saving attributes. ELSS funds invest a minimum of 80% of their assets in equity and equity-linked securities. Investments in these mutual funds are eligible for a tax deduction of up to Rs1.5 lac u/s 80C of the IT Act, 1961. An investor can save up to Rs 46,800 p.a. by investing in ELSS mutual funds. ELSS tax saving funds are accompanied by a 3-year lock-in period, which also happens to be the shortest lock-in period against any other Section 80C investments. These mutual fund tax savers offer dual benefits of wealth creation and tax saving.
How to invest in ELSS funds?
Follow these simple steps to start investing in Equity-Linked Savings Schemes:
- Determine your taxable income and tax slab
It’s important to have a clear picture of your taxable income and your tax slab. This will aid you to decide under what sections you can save tax and what investment options can be useful in achieving that.
- Choose the most suitable ELSS mutual fund for your investment profile
As an investor, you must consider various factors such as the age of the fund, consistency, past performance of the fund, extended internal rate of return (XIRR) of the fund, etc. You must ensure that your ELSS fund aligns with your investment horizon, risk profile and financial goals and objectives. Additionally, if the fund is actively managed by a mutual fund expert, you should look at their history to determine their success ratio and vision.
- Invest in ELSS online
An investor can invest in ELSS online by filling in all the necessary personal details in the application form, providing their bank details, and uploading a picture of a cancelled cheque. This can be done directly on the AMC’s (Asset Management Company) website or through a mutual fund transfer agency like CAMS (Computer Age Management Services). Just follow these simple steps and, voila, you have created an account, and you can now invest in ELSS funds.
Just like any other mutual fund, ELSS mutual funds offer the flexibility to choose the investment style – SIP (Systematic Investment Plan) and lumpsum. SIP follows a disciplined way of investing, wherein an investor invests a specific amount periodically over a period of time that lowers their burden to invest. In the lumpsum mode of investing, an investor puts all their money in one go at the start of the investment cycle. Happy investing!