A complete guide on investing in ELSS Funds

Equity-Linked Savings Schemes, also called ELSS, are Mutual Funds that offer tax benefits. According to section 80C of the Tax Act, taxpayers can invest up to Rs.1.5 lakh and deduct that amount from their taxable income. ELSS comes under securities that have been legalised. The other securities include Public Provident Fund, National Pension Scheme, etc.

How to invest in ELSS Funds?

Opting for an online Investment Services Account is the simplest method. You have two investment options: Lumpsum Investments or Systematic Investment Plans. SIP ensures consistency and discipline while lowering capital risk. Under an ELSS Fund, you can invest as little as Rs. 500. No matter how much you invest, you may only claim a tax benefit of up to Rs. 1.5 lakh.

Who can invest in ELSS Funds?

If you consider Lumpsum Investments, it is an alternative to produce income and reduce taxes. They are best for those with lesser risk tolerance and appetite. The ability to invest in ELSS Funds is not age restricted. Newly employed professionals can invest their hard-earned money in such funds.

Investors who wish to diversify their holdings and search for a new alternative to adding to their portfolio can consider ELSS Funds. You can even invest in the top ELSS Funds to boost your investment portfolio.

What are the factors to consider before investing in ELSS?

Before investing, research all aspects. Here are some factors that play a crucial role:

Liquidity - ELSS Mutual Funds have a three-year lock-in period, so ensure your objectives align with it.

Tax planning - Several investors, opt for ELSS to save on taxes. If you are concerned about tax planning, consider evaluating your alternative possibilities. For instance, under Section 80C, your investments in other plans like NPS and PPF are also eligible for a tax break.

Investment horizon - You should revaluate your selections if you intend to sell your investments after the lock-in term. An ELSS may take five to seven years to stabilise and provide high returns after investing the funds in the market. Only those with a longer-time perspective should invest in ELSS because the stock market is unpredictable and vulnerable to cyclical ups and downs.

Conclusion

ELSS Funds, as a tax-efficient investment, provide returns that may outpace inflation. These funds are high-risk and high-return investments since short-term volatility does not affect them. An ELSS is a wise investment choice if you want better returns, have a long investing horizon, and are open to a three-year lock-in period.