Posted by Investing is crucial for achieving financial goals and creating wealth in the long run. However, with various investment options available in the market, choosing the right one can be daunting. Equity Linked Saving Scheme (ELSS) is a type of mutual fund that not only helps you save taxes but also allows you to invest in the stock market. ELSS funds are gaining popularity due to their potential to provide high returns in the long term. In this article, we will discuss what ELSS funds are, their benefits, and how to invest in them.
What are ELSS Funds?
ELSS funds are tax-saving mutual funds that invest primarily in equity and equity-related securities. They have a lock-in period of three years, which means you cannot withdraw your money before completion of the lock-in period. ELSS funds offer income tax benefits under Section 80C of the Income Tax Act, 1961, wherein you can claim a deduction of up to Rs. 1.5 lakhs from your taxable income. ELSS funds are managed by professional fund managers who invest in stocks after thorough research and analysis. The returns from ELSS funds are market-linked and depend on the performance of the stock market.
Benefits of ELSS Funds
- Tax Benefits: ELSS funds offer a dual benefit of investing in the stock market and saving taxes. With a maximum deduction limit of Rs. 1.5 lakhs, investing in ELSS funds can help you lower your tax liability. The returns from ELSS funds are also tax-free.
- Potentially High Returns: As ELSS funds invest primarily in equity and equity-related securities, they have the potential to provide high returns in the long run. Over the past five years, ELSS funds have generated an average annualised return of around 12%.
- Diversification: ELSS funds invest in a variety of stocks, which helps diversify the investment portfolio. The risk is mitigated by spreading the investment across various sectors and companies.
- Lock-In Period: ELSS funds have a lock-in period of three years, which encourages investors to stay invested for the long term. This helps in reaping the benefits of compounding.
How to Invest in ELSS Funds?
Investing in ELSS funds is easy. You can invest in them through a mutual fund distributor or online through various mutual fund platforms. Here are the steps to invest in ELSS funds:
- Know Your Risk Profile: ELSS funds invest in equity and equity-related securities, which are risky investments. Before investing, it is important to assess your risk profile and invest accordingly.
- Choose the Fund: Once you know your risk profile, choose an ELSS fund that aligns with your investment goals and risk appetite. You can compare the performance of different ELSS funds by looking at their past returns, fund manager’s experience, and expense ratio.
- Complete the KYC Process: KYC or Know Your Customer is a mandatory process that every investor has to complete before investing in mutual funds. You can complete the process by submitting your identity proof, address proof, and other necessary documents.
- Invest: Once the KYC process is complete, you can invest in the chosen ELSS fund through your mutual fund distributor or online.
It is important to note that investing in ELSS funds involves market risk, and the returns are not guaranteed. It is advisable to consult a financial advisor before investing in ELSS funds.
Mutual Fund SIP Calculator
A Systematic Investment Plan (SIP) is a way of investing in mutual funds regularly. It helps in rupee cost averaging and eliminates the need for timing the market. With the help of a Mutual Fund SIP Calculator, you can calculate the returns on your investment and plan your investments accordingly. The Mutual Fund SIP Calculator takes into consideration the investment amount, investment duration, and expected rate of return to calculate the future value of the investment.
To use the Mutual Fund SIP Calculator, enter the investment amount, investment duration in years, and expected rate of return. The Calculator will provide you with the future value of the investment and the total investment amount.
Conclusion
ELSS funds offer a great option for investors looking to save taxes and invest in the stock market. However, it is important to assess your risk profile before investing in ELSS funds. You can invest in ELSS funds easily through a mutual fund distributor or an online mutual fund platform. To plan your investment, use the Mutual Fund SIP Calculator and calculate the future value of your investment. Before investing in ELSS funds, make sure you understand the risks involved, and consult a financial advisor if required.
Disclaimer: Investing in the Indian financial market involves risks, and investors must gauge all the pros and cons before investing. The author and the publishing platform are not responsible for any losses incurred due to investments made after reading this article.