How to Invest in ELSS Mutual Funds?

Mutual funds allow us to invest in a diversified portfolio of securities. One can find an equity, debt, or hybrid mutual fund scheme and start investing. However, these mutual fund schemes might not offer tax benefits.

Luckily, you have the option to invest in. An Equity Linked Savings Scheme is a type of mutual fund offering tax benefits. Continue reading to understand how to invest in ELSS.

Topics Covered:

• What is ELSS?
• How to Invest in ELSS Mutual Funds?
• Features of ELSS Funds
• Advantages of ELSS Mutual Funds
• Comparison of ELSS Vs. ULIP Vs. NPS
• Final Words

What is ELSS?

ELSS is a type of mutual fund scheme in India that comes with tax benefits. It allows people to invest in a diversified portfolio of equity and equity-related securities. The tax benefits offered by such schemes are mentioned under Section 80 of the Income Tax Act (1961). Since it helps build wealth and save on taxes simultaneously, it is preferred by many investors in India. One can easily invest in ELSS through an online trading platform and enjoy these tax benefits.

How to Invest in ELSS Mutual Funds?

ELSS is suited for wealth creation, tax savings, retirement planning, and many other purposes. It is crucial to note that you must have access to a digital trading platform. You can open a Demat-cum-trading account in India to invest in ELSS and other instruments.

Many Asset Management Companies also offer specialised mutual fund platforms for investors. You must complete the KYC (Know Your Customer) verification when choosing a digital platform for investing in mutual funds. Here’s how to invest in ELSS mutual funds:

• Choose an ELSS Fund: Select an ELSS fund based on investment objectives through the digital trading platform.

• Choose the Investment Type: You can invest in ELSS in two different ways. You can invest a lump sum amount. However, you can also choose a Systematic Investment Plan to invest. A SIP will allow you to invest a fixed amount in the ELSS fund at regular intervals, thus leveraging the power of cost-averaging.

• Provide the Required Documents: You can be asked for a PAN card, Aadhar card, or any other document.

• Choose the Lock-in Period: It is crucial to note that all ELSS mutual funds come with a lock-in period of three years. After the passage of three years, the fund becomes an open-ended scheme.

• Make the Payment: Pay the specified amount to invest in ELSS.

• Monitor the Performance: You can monitor the performance of the fund you invested in and make informed decisions regarding redeeming units, increasing the SIP amount, etc.

Additional Read: Types of Mutual Funds

Features of ELSS Funds

Now that you understand how to invest in ELSS online, here are its features:

• Types: You can choose the dividend option with ELSS to receive a fixed amount at regular intervals. One can also choose the growth option as well to receive a lump sum amount at the end of the lock-in period.

• Tax Benefits: One can claim tax deductions on ELSS schemes, as mentioned in Section 80C of the Income Tax Act.

• Equity-Heavy: These funds consist of 80% or more equity and equity-related instruments in their portfolios. It allows investors to earn attractive returns over the years.

• Beyond Lock-in Period: As discussed above, these funds become open-ended schemes after the lock-in period of three years. It means one can redeem their units any time after the lock-in period.

• SIP Options: You can choose a SIP to invest in an ELSS fund. A SIP will allow you to invest a fixed amount in the fund at regular intervals.

• Portfolio Diversification: The ELSS portfolio consists of stocks of companies in different industry sectors. Some equity-related instruments are also added for diversification.

Additional Read: What are Liquid Funds?

Advantages of ELSS Mutual Funds

Here are the pros of investing in ELSS mutual funds:

• Reasonable Lock-in Period: Investors prefer the short lock-in period of ELSS funds. The lock-in period for such funds is shorter than that of the National Savings Certificate (NSC), Public Provident Fund (PPF), and other schemes.

• Tax Deductions: It offers tax benefits on investments up to Rs. 1.5 lakhs. The tax deductions are mentioned in Section 80C of the Income Tax Act in India.

• Attractive Returns: Since such schemes invest heavily in equity and equity-related instruments, there are chances for attractive returns. When the overall stock market performs well, you can generate high returns through ELSS mutual funds.

• Dividend and Growth Options with ELSS: You can choose between dividend and growth options when investing in an ELSS fund. The dividend option will pay you a fixed amount in installments. On the other hand, the growth option will pay you a lump sum amount after the lock-in period.

• Start Small: The investments can be started at Rs. 500. There is no compulsion to invest a heavy upfront amount in an ELSS fund. Investors can rely on SIPs to invest small amounts at regular intervals.

Additional Read: Mutual Funds Basics Guide

Comparison of ELSS Vs. ULIP Vs. NPS

Here is a detailed comparison between ELSS, ULIP (Unit Linked Insurance Plan), and NPS (National Pension Scheme):

Additional Read: Systematic Withdrawal Plan (SWP)

Final Words

One can invest in ELSS and claim tax benefits in India. Such mutual fund schemes invest in equity and equity-related instruments, thus offering attractive returns. One must remember that these funds come with a mandatory lock-in period of three years. You can rely on an online trading or mutual fund platform like Religare Broking to discover ELSS funds. Find the best ELSS fund for you now!