Mutual fund investments have become a popular tool among investors these days. People invest in mutual funds as they offer them an opportunity to make investments in various types of mutual funds available to them. One of the mutual fund benefits is that they offer higher returns than most traditional forms of investments, like fixed deposits. Have you ever found yourself wondering ‘what is a mutual fund’? A mutual fund is an investment vehicle where an expert fund managerpools money of various investors and invests in a portfolio of financial instruments, depending on the mutual fund’s orientation.
One of the most popular tax-saving mutual fundsare ELSS funds.
Equity-Linked Saving Schemes or ELSS are equity-oriented schemes that predominantly invest in equity and equity-related schemes to generate substantial returns for investors. These tax-saving schemes have a lock-in period of 3 years; however, mutual fund experts recommend investors to invest for a minimum of 5-7 years.It is also suggested to link your ELSS investments with long-term investment goals. This helps investors hold on to the fund even during times of volatility in the capital markets.
ELSS funds offer dual benefits as you get to enjoy capital appreciation apart from tax exemption. Not only can you save up to Rs 46,800 each financial yearby investing Rs1.5 lakh in ELSS funds under Section 80C of the Income Tax Act, 1961, but equity funds are also known to result in substantial capital appreciation over the long-term.
How to invest in tax-saving mutual fund schemes?
Follow these basic steps to start investing in Equity-Linked Savings Schemes:
- Determine your tax slab and taxable income
It’sessential to have a clear picture of your tax slab and your taxable income. This will help you determine under what sections you can save taxes and what investment products can be useful.
- Pick the most suitable ELSS fund for you
Consider various factors like the past performance of the fund, consistency, age of the fund, and extended internal rate of return or XIRR of the fund, etc., among other things. Choosing a fund that aligns with your investment goals and objectives is an ideal way to go about it. Additionally, if the fund is being actively managed by a mutual fund expert, you should look at their history with other funds to determine their vision and success ratio.
- Invest in ELSS online
You can invest in ELSS online by filling in all the required personal details in the application and FATCA forms, provide your bank details, and upload a picture ofa cancelledcheque. This can be done directly on the Asset Management Company’s (AMC) website or through a mutual fund transfer agency. Just follow these steps and, voila, you have created an account and you can start investing in ELSS funds.
While investing in ELSS, you have two options of investment: SIP, i.e. Systematic Investment Plan and lumpsum. SIP follows a disciplined way of investing, wherein an investor is asked to invest a particular amount periodically, which lowers their burden to invest. In the lumpsum method of investing, you have to put all your money in one go at the start of the cycle.
The dual benefits of capital appreciation and tax-saving makes ELSS funds one of the most sought-after investment avenues in the markets. Happy Investing!