Are you looking for a way to save taxes while growing your wealth? If so, investing in Equity-Linked Savings Schemes (ELSS) might be an ideal option for you. ELSS are diversified equity mutual funds that primarily invest in equity and equity-related instruments. Regulated by the Securities and Exchange Board of India (SEBI), ELSS funds allocate at least 80% of their total assets to equities. They also offer tax advantages under Section 80C of the Income Tax Act, 1961. You can claim deductions on investments up to Rs 1,50,000 annually and reduce your taxable income.
Thinking about making ELSS funds a part of your investment portfolio? Let's understand the key features of ELSS funds and the step-by-step process for investing in them.
Key features of ELSS funds
Here's what makes ELSS funds widely favoured by investors:
Equity-focused investment: Since a large part of the portfolio is allocated to equities, ELSS returns can be higher compared to fixed-income instruments.
Dual benefits: You benefit from both tax savings and capital appreciation.
Flexible investment options: Choose between growth or dividend options, depending on your financial goals.
Short lock-in period: The 3-year lock-in period for ELSS is less than many other tax-saving investments such as Public Provident Fund (PPF) or National Savings Certificate (NSC).
Taxation relief: Capital gains up to Rs 1.25 lakh from an ELSS investment in a financial year are exempt from taxes. Also, because of the 3-year lock-in period, capital gains from ELSS funds qualify as Long-Term Capital Gains (LTCG), and a 12.5% tax usually applies.
How to invest in ELSS funds?
Wondering how to start investing in ELSS funds? Discussed below are two easy ways to begin:
Through the mutual fund company website
Go to the official website of the mutual fund house offering the ELSS scheme you want to invest in.
On the homepage, choose the specific ELSS fund you want to invest in. Tap on the ‘Invest’ or ‘Buy’ button.
Enter your mobile number, verify it with an OTP, and continue.
Decide whether to invest a lump sum or opt for a Systematic Investment Plan (SIP) for regular investments.
Finalise the payment process through your preferred mode, such as net banking or Unified Payments Interface (UPI).
Use an investment app
Open an investment app.
Log in with your existing credentials or create a new account using your email ID, PAN number, and mobile number.
Complete other formalities like video KYC (Know Your Customer), linking your bank account, and adding a nominee.
Explore and compare ELSS funds based on their performance metrics, expert evaluations, and market ratings.
Choose an ELSS fund after evaluating its returns, fund manager expertise, expense ratio, risk level, and performance consistency over time.
Similar to direct mutual fund investments, you can opt to invest through SIPs or as a lump sum.
Finalise your payment securely through UPI, net banking, or other app-supported methods.
Key takeaways
Investing in ELSS funds is a great way to save taxes and grow your wealth over time. Their mandatory three-year lock-in period promotes disciplined investing, and equity exposure offers the potential for high growth. You can invest in ELSS funds directly through mutual fund websites or via online apps from any location.
If you have a substantial amount available and want to capitalise on a time-sensitive opportunity, a lump sum investment might interest you. SIPs can be ideal if you prefer to invest regular amounts over time. It helps manage market volatility by averaging out the purchase cost and encourages disciplined investing.