An Expert’s Guide on How to Invest in ELSS Mutual Funds

Achieving financial stability is a vital aspect of every individual’s life. However, a right plan of investment must incorporate a fine balance between the one that offers a lucrative return along with the provision of tax-saving benefits. Experts advise that the financial goal of an investor should be to identify tax planning. The market scenario is inundated with several popular investment schemes that offer tax savings on investment through conventional routes like National Provident Fund (NPF), Public Provident Fund (PPF), Fixed Deposits (FD) and others. 

To gain appreciable returns, the shift should be towards the equity market. The best instrument to channelise this investment undertaking is through ELSS, which stands for equity-linked savings scheme. These tax-saving products are equipped with the lowest lock-in period and help to receive the best kind of payments. These are the steps that entrants should follow on how to invest in ELSS funds.

Step 1: Determine your taxable income in tax slab 

Before making any investment, especially in schemes dominated by tax savings, it is an obligation on the part of the investor to check this taxable income in the tax slab. This will give him a clear picture, that under which section he is entitled to get tax benefits and which scheme can fit best in for that purpose. 

Step 2: Select the suitable ELSS 

Whenever picking up any ELSS, look for the past performances as it reveals facts like the likelihood of success and one’s ability of payment. Past performance will not guarantee future returns, but it will give a fair implication of how portfolio managers were able to generate wealth through the inconstancies of the equity market. The imperative must be given on the consistency of funds in the long term, where a market cannot be evaluated based on a couple of months or a year. Most of the investors who don’t have a substantial amount for investment, always prefer to invest periodically. The internal rate of return can be calculated with the help of XIRR. This also helps in picking a suitable fund. 

Step 3: Invest in ELSS

After picking the best ELSS fund, the next step is to invest by opening a bank account. This will help to credit all the dividends or lumpsum amount received through the scheme. If you are assuming how to invest in ELSS online, then these are the simple ways to proceed. 

• Select the option to create an account.
• Fill up all the details regarding personal information along with the FACTA form.
• Provide the required bank details
• Upload a scanned copy of the canceled cheque.
• After opening the account successfully, you can now start investing. 
• On the homepage, click on invest option now and select your suitable ELSS fund. 

By following these simple ways, you can conveniently invest in ELSS.  

Step 4: SIP or Lumpsum 

Investors can be in a dilemma when it comes to selection between SIP and lump Sum plans. The SIP is an excellent way to invest in the ELSS funds as it doesn’t place the burden of investing the amount at one time. It spread the investment amount and helps to gain benefit from rupee cost averaging. Investment up to INR 1,50,000 can help the investors to save a sizable amount of tax. In a Lumpsum plan, most of the time, investors invest this money at the end of the financial year to obtain all the tax benefits as the deadlines are near. However, this is entirely an inappropriate strategy. Remember the ELSS funds are equity-based schemes related to the fluctuations of the market and hence, this is considered bad in aspect of timing. If this pattern is followed ever year based on the timeline, investors can invite risk for getting negative returns on the investments.  

Step 5: Select a mutual fund distributor 

You can directly deal with the mutual fund company, but it is recommended to pick a person who acts as an intermediary and helps in the management of the funds. They take all the burden in their shoulders and invest on your behalf without charging any commission for their services. They receive a cut from the company where they invest by bringing new clients. You can also get an online mutual fund distributor. However, a word of caution is to invest in ELSS that suits your requirement and not the distributor. 

Step 6: Redemption of ELSS

Funds like ELSS comes with a lock-in period of 3 years and provides tax relief to the investors. Once the ELSS reaches its maturity period, investors can withdraw the total or partial amount of money. It must be noted that all the returns are taxed as per the Long Term Capital Gain Tax, and only an amount up to INR 1 lakh is exempted from tax in a financial year. It is suggested that investors should opt for a rollover.

The ELSS gives a good scope to the investors who are relatively new in the market. The scheme mainly targets the investment along with tax savings. Even a low-income earner can reap the benefits by investing in this scheme. 

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