A category of Mutual Funds called Equity-Linked Saving Schemes invests primarily in equities and equity-linked securities like shares. According to Section 80C of the Tax Act of 1961, ELSS Mutual Funds are the only funds that qualify for tax deductions. You can gain tax benefits of up to Rs. 1.5 lakh, saving you Rs. 46,800 in taxes.
These Tax-Saver Funds commit at least 65% of their portfolio to stocks, with the remaining percentage invested in fixed-income assets. Investing in ELSS is possible in easy steps:
Know the ELSS features – You should know what you are entering into and the rewards you would receive. ELSS is a likeable tax-saving investment that also doubles as a wealth-building investment. This Mutual Fund has the shortest lock-in period among all tax-saving assets, i.e., three years.
Pick the suitable scheme - You should consider numerous factors when selecting the best ELSS Fund. An investment horizon of more than five years is an excellent place, to begin with.
Choose between the dividend and growth options - This is a crucial aspect of these Tax Saving Mutual Funds. You get dividend payments anytime the fund is profitable. The appropriate scheme units are redeemed for this. When the fund achieves profit, in the growth option, earnings are reinvested in the fund than paid out as dividends. You should decide which option best suits you before investing.
Choose the payment method - You can choose between Lumpsum or Systematic Investment Plans. Due to its primary benefit, which enables you to invest in the fund through many business cycles, investors opt for SIPs. As a result, the fund manager can buy fewer or more units depending on whether the market is rising or falling. You can only gain from investing in ELSS in a lump sum if you have a long investment horizon and a high-risk tolerance.
Decide the investment amount - There is no upper limit for ELSS, and the minimum investment might be as little as Rs. 500, depending on the fund company. Meanwhile, you can invest more to take advantage of Section 80C tax-saving benefits. You could save more, depending on your tax bracket.
Decide on a distributor - You can start an ELSS by visiting the fund house's branch personally or online. However, most investors favour using a distributor or intermediary. This simplifies the procedure for you and handles the documentation process as well.
Conclusion
Equity investments are riskier than other Mutual Fund Investment. ELSS Funds are a wise approach to reducing investors' risk exposure while generating significant returns.
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