Contents
- Introduction
- Tax Benefits of How to invest in ELSS
- Documents required for How to invest in ELSS
- Offline Investment
- Online Investment
- Step-wise description for how to invest in ELSS
- Features of How to invest in ELSS mutual funds
- Salient features of How to invest in ELSS
- Benefits of investments in ELSS
- Demerits of investing in ELSS
- Options of How to invest in ELSS schemes
Introduction
ELSS or Equity Linked Saving Scheme is a type of mutual fund investment that aims at saving tax of the investors. What are the best ELSS funds to invest in 2019? The investor should choose the best scheme that charges minimal returns and provides maximum output in the form of dividends. Now, you must be wondering how to invest in ELSS. Check the best way to invest: ELSS. Well, we are here to give you a step by step guide to investing your money in the ELSS.
Tax Benefits of How to invest in ELSS
If an investor makes an investment up to Rs. 1,50,000 in a year, then it is exempted from tax under section 80C of the Income Tax Act. Keep yourself informed about the process of Income-tax e-filing. The money redeemed after the completion of the lock-in period was tax-free before. But now it is counted as LTCG (Long-Term Capital Gains) & so the tax is charged @ 10%. This tax is charged without the benefit of the indexation. Learn How to plan your tax.
Documents required for How to invest in ELSS
Offline Investment
Before you get to know How to invest in ELSS, you should know the documents you need for applying offline:
- Key documents such as Aadhar card or Pan card
- Post dated cheques are required in the favor of the mutual fund scheme with a duly filled application form
Online Investment
Before you know How to invest in ELSS, you must know the online investment requirements:
- Aadhar Based eKYC
- After the online registration is done using eKYC, the user can then move onto the next step using the documents such as PAN, etc. to complete the registration. Learn about the KYC.
Step-wise description for how to invest in ELSS
| Steps | Topic | Details |
|---|---|---|
| Step 1 | Selecting the tax saving scheme according to your need | The priority of the scheme depends upon the returns it offers. For instance, the Axis Mutual fund provides 40% return whereas escort mutual funds give barely 15% of it. Although, it is difficult to predict the performance of any mutual funds. But it is usually seen that a mutual fund that performs better last year would follow the same case the following year. |
| Step 2 | Choosing between regular mutual funds or tax saving mutual funds | There are 2 options for investment. The first one is regular mutual funds, where a higher expense ratio is charged because of the payment to the one who distributes the mutual funds. Whereas in another case, the investor needn’t pay the distributor at all. One of the major differences between both of the schemes is due to the NAV all. |
| Step 3 | Open a bank account | For the interest to be credited under your name, open an ELSS account. |
| Step 4 | Picking an intermediary | Before you start pumping in the money, select a distributor or middlemen. These could be found all over the country. You need this person to manage in all of your accounts and take your burden of investing and managing the funds. In addition to this, these fund managers don’t charge from you but get a commission from the company in which they’ll invest your funds. |
| Step 5 | Mutual fund distributor | These distributors will basically invest on your behalf into the funds that will give you returns. But remember to invest in the funds that benefit you and not the person. |
| Step 6 | Online distributor | In today’s day and age, there are multiple distributors who would invest in on your behalf. You shouldn’t just pick the distributor you met in person. Because in the end, it all comes down to who will give you a higher return overall. |
Features of How to invest in ELSS mutual funds
The investment made in ELSS is a great way of earning returns and saving taxes. A novice investor can start investing, the day he/she starts earning. This way the investment made will yield huge returns in the next decade or so.
Salient features of How to invest in ELSS
An investor should know some salient features after knowing How to invest in ELSS:
- ELSS is an open-ended mutual fund scheme that provides tax benefit of earnings up to Rs. 1,50,000 under section 80C of the Income Tax Act.
- There are 2 options for investment. Mainly, the growth option and the dividend option.
- In the case of dividend option, during the lock-in period of 3 years, the returns will be made in installments. And in the case of growth option, lump sum returns get transferred to the investor’s account.
- The returns an investor get is dependant upon the performance of the market.
- There is also an option of SIP investment in the ELSS, where the investment made would be in the form of regular installments. What are the best SIP plans to invest in 2019? Must read on what is the difference between SIP & mutual funds.
- ELSS comes with a lock-in period of 3 years.
- As this is a diversified mutual fund scheme, the majority of the investments are in an equity scheme. Learn how to evaluate the best equity mutual funds.
- You can invest a maximum of Rs. 1,50,000 in ELSS.
Benefits of investments in ELSS
Once you understand How to invest in ELSS, you should know about the benefits of the ELSS:
- ELSS offers tax-free gains. You can now choose the best tax saving investment option.
- These funds are highly liquid in nature. But what are liquid funds?
- In addition to low charges, the funds are highly transparent.
- The lock-in period is of 3 years & one can easily withdraw or displace the amount after 3 years.
- You can easily calculate the returns on the investment by using the ELSS calculator.
- The minimum SIP is as low as Rs. 500. But how to invest in SIP that’s best for you?
- There are 2 options, dividend and growth. In the former case, a person will get fix amounts in return. Whereas, in the latter case, the investor will get a lump sum amount after the end of the lock-in period.
Demerits of investing in ELSS
After understanding How to invest in ELSS, the investor should know certain demerits of ELSS:
- While investing, a person has to undertake a lot of steps of documentation.
- As mentioned before, the returns depend upon the market performance. So, if the market is slowing down so will the returns.
- There is no option of pre-mature withdrawal of money.
- NRIs cannot make an investment in most of these schemes.
- ELSS is very risky (in comparison to PPF or NSC).
Options of How to invest in ELSS schemes
After knowing How to invest in ELSS, the investor can choose either the open-ended scheme or close-ended scheme according to the needs.
- Open-ended ELSS: In this case, the investor can redeem/withdraw the amount anytime after the lock-in period ends. It is one of the most common types of ELSS investment. An investor can invest in these schemes according to their convenience.
- Close-ended ELSS: On the contrary, in this type of investment, the investor cannot redeem the amount after the end of the lock-in period. The investments in close-ended schemes can only be during the New Fund Offer (NFO). There are no investments beyond this period.
Before signing off, you should check our website WealthBucket. We have tons of features of investments including equity mutual funds, liquid mutual funds or debt mutual funds. You can either contact us at +91 9999379929 or email us at contact@wealthbucket.in
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