Investors entertain various objectives while investing; some may consider long-term growth, while others may look for tax-efficient investing. If the latter is your target, elss funds would serve as a good opportunity. It offers a unique blend of potential returns from equities as well as the benefit of tax saving under Section 80C of the ITA (Income Tax Act). But what is meant by ELSS funds, and how can one invest in this kind of fund? Let’s explore!
What Are ELSS Funds?
ELSS funds are Equity Linked Savings Schemes funds that offer investors the dual benefit of potential appreciation in capital from investments in equity as well as savings of tax under Section 80C of ITA. ELSS funds are a particular kind of mutual fund that invests in stocks or equities and entertains a mandatory lock-in period.
In order to know what is elss fund in detail, it is essential to look at the key features of this type of fund, which are mentioned below in detail:
One of the most attractive features that ELSS funds offer investors is their feature of tax benefits. The ELSS fund investments are eligible for a deduction of up to ₹1.5 lakh from the total taxable income of a year.
This feature has made ELSS funds a popular choice among investors who are looking forward to potential returns from the equity market along with securing a method of saving tax.
Investment In Equities:
A significant portion of the portfolio of the ELSS fund is allocated to the stocks of various companies or equities among diverse sectors. This makes a provision for higher returns over the long term for the investors. However, it is essential to note that this comes with higher risks related to the market, unlike debt-oriented options for tax savings.
Specific Lock-In Period:
ELSS funds come with a specific lock-in period, which is generally three years from the investment date. This reflects that the investors will not be allowed to redeem their investment before the completion of the tenure.
As the investment of ELSS funds is spread across a diversified portfolio of stocks, it assists in spreading the risk. This, however, alleviates the poor performance of a particular stock on the overall performance of the fund.
The returns of the ELSS funds are directly linked with that of the performance of the equity markets. This means that their returns can be volatile, and it is also essential for investors to be prepared for the fluctuations in their investment values.
How To Invest in ELSS Funds?
As ELSS funds offer multiple opportunities for investors, knowing the steps on how to invest in ELSS funds is a mandate. Here’s a step-by-step guide that will prove beneficial:
Step 1: Select A Fund:
The first step is to research about various ELSS funds and choose the one that aligns with the risk tolerance and goals of your investment. Considering several important factors, such as the track record of the fund manager, the performance history of the fund, the expense ratio, and the investment strategy adopted by the fund, will prove helpful in ensuring that the fund is a safe one to invest.
Step 2: Complete The KYC:
Once you have selected a particular ELSS fund, make sure that you are done with your KYC requirements. If not, complete the KYC as soon as possible by providing address proof, proof of identity and other documents necessary to abide by the regulatory norms.
Step 3: Select A Method Of Investment:
Investment in ELSS funds can be made through various methods such as direct investment, investing through online mutual fund platforms, through brokers or distributors, as well as through online banking portals. Choose the one that offers you the utmost convenience.
Step 4: Determine The Amount To Be Invested:
After determining the investment method, decide the total amount you want to invest in the ELSS fund. You can invest a lumpsum amount or opt for a SIP (Systemeatic Investment Plan) to ensure investments on a regular basis.
Step 5: Provide Necessary Details:
Whatever investment method you choose, it is essential to provide your bank as well as personal documents such as PAN and account number, along with other relevant information about your bank.
Step 6: Make The Payment:
Make the payment through various online payment methods that are available, including UPI, debit cards, and net banking, among many more. On completion, the payment will be debited from your selected bank account. You will receive confirmation regarding your investment along with other details, such as number of units allocated on the basis of the current NAV.
To sum up, keeping track of the investments and monitoring the performance of the chosen ELSS fund is also essential for the efficient management of your investment portfolio. For valuable insights on your investment, consider consulting with a financial advisor.