Different investors have different needs that they wish to achieve from their mutual fund investments. Some wish to just fetch source of income, while others wish to accumulate wealth over time, while others wish to simply preserve their wealth, and some wish to save tax. If you are looking to save tax, you might consider investing in ELSS funds. The more you save on tax, the more you would be able to take the returns home. Hence, it is important that you give time and attention to your tax planning. Though there are several tax-saving investments that an investor can choose from, ELSS tax saver mutual funds stand out from all tax-saving investments. In this article we will focus on what are ELSS funds and how to invest in ELSS funds.
What are ELSS funds?
ELSS funds are a type of mutual funds that invest a majority of their assets in equity asset classes. These mutual funds are mandated to invest at least 80% of their investments in equities and equity related securities by the Indian mutual fund regulator – Securities and Exchange Board of India (SEBI). ELSS mutual funds have a mandatory lock-in period of three years. Although, mutual fund advisors or financial experts advise investors to stay invested for a longer duration. They often advise their clients to link their ELSS mutual funds with their long-term investments so that they do not get tempted to exit the markets at slightest market volatility. ELSS funds offer tax deduction of up to Rs 1.5 lac u/s 80C. While this fact is commonly known among investors, not much know that you can save up to Rs 46,800 per annum by investing in tax-saving investments. Hence, ELSS funds offer dual benefits to investors – tax saving benefits and wealth creation opportunity.
How to invest in ELSS funds?
If you are wondering how to invest in ELSS funds, here are some simple steps that can help you in your investment journey:
- Evaluate your taxable income and eventually the income tax slab you belong to
Before you begin to invest in tax-saving investments, including ELSS funds, you must have a clear picture of your tax aspects, which includes your taxable income and the income tax slab you are likely to belong to. This will help you decide how much to allot to ELSS tax saving mutual funds.
- Choose the right ELSS mutual funds for your investment portfolio
Before singling out the right tax saving mutual funds for your investment portfolio, you must consider several parameters such as past performance of the ELSS fund, age of the fund, XIRR (extended internal rate of return), consistency of the fund, etc. You must also make sure that your fund’s objectives must align with your risk appetite, investment horizon, financial goals, etc. You can look at the fund’s history to understand the fund’s vision and success ratio better.
- Invest in ELSS online
As an investor you have the option to invest in ELSS either through the traditional offline method or the online mode of investment. All you have to do is simply input the required details, your bank details, and a copy of a cancelled cheque.