When we think of ‘Mutual Funds,’ our mind often drifts to a Large-Cap or maybe a Mid-Cap or a Flexi Cap Fund. The Equity-Linked Savings Scheme only occurs as a tax-saving option. However, despite our mindset, it remains a dominant category in Mutual Funds, with Assets Under Management of over Rs. 1.35 lakh across 1.27 crore portfolios. ELSS is an acronym for Equity-Linked Savings Scheme.
It is an open-ended scheme where at least 80% of your money invests in stocks. These schemes let you save taxes by providing benefits under Section 80C of the Income Tax Act, along with a lock-in period of three years.
Wealth creation
An ELSS Fund competes with other instruments like the Public Provident Fund, National Pension Scheme, Tax Saving Fixed Deposits, National Savings Certificate, etc., for a share of the tax-conscious investor’s wallet. But unlike these mostly fixed-income products, the fund is a pure-play Equity product. It is labelled more as a wealth creation than a savings product.
It offers a volatile path to progress with many ups and downs by offering potentially higher returns.
Tax benefits
The investments in here are eligible for tax benefits. While there is no limit to the investment amount, a maximum of Rs. 1.5 lakh is eligible for tax benefits per the Income Tax rules. This deduction includes your investment in other tax-saving instruments like the PPF, NSC, Life Insurance, etc.
How to invest?
To invest in ELSS Mutual Funds, you should be KYC-compliant. You can invest online or offline. E-KYC is simple with a PAN Card and address proof like Aadhar, passport, utility bills, or Government ID. It is video based, which helps validate your documents and takes photos/ For online investment, visit the AMC website, Registrar and Transfer Agent website, or online platform. Next, register on any of these using your mobile number, email address, and PAN.
The website verifies whether you are KYC-compliant or not. If yes, you can select the scheme, direct or regular plan, and the dividend payout or growth option. The lumpsum and Systematic Investment options are also available.
Selecting a scheme
When opting for a Mutual Fund scheme, you should consider the performance and compare it with its peers. Also, evaluate whether the scheme has beaten the category’s average and benchmark returns over time. If the scheme matches any of these criteria, invest in one or two based on the amount.
Investment amount
The investment amount depends on your taxable income. You can invest a maximum of Rs. 1.5 lakh in a financial year to avail of tax benefits. After the lock-in of three years is over, any redemption or switch out from the scheme attracts tax liability. According to the current tax laws, the profits made are tax-free up to Rs. 1 lakh in a financial year. Thereon, they attract a 10% tax.
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