How to Invest in ELSS Funds : A Comprehensive Guide

Putting money into Equity Linked Savings Scheme (ELSS) funds can be a smart financial move because they can help you save on taxes and build wealth over time. This thorough guide will familiarise you with how to invest in ELSS funds, explain what they are, how they work, their tax-saving benefits, lock-in periods and how to invest in the best ELSS funds out there. 

What do ELSS funds do?

A Mutual Fund is an investment vehicle managed by financial experts. It pools money from several investors to invest in securities such as stocks, bonds and other assets. Mutual Funds offer small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder therefore gains or loses proportionately to the fund’s investment performance.

Advantages of Mutual Funds:

There is a type of Mutual Fund called Equity Linked Savings Scheme (ELSS) that mostly deals in stocks. The three-year lock-in period that comes with ELSS funds is one thing that makes them stand out among tax-saving investment choices. These are the most important things about ELSS funds:

Equity exposure: At least 80% of ELSS fund assets are invested in stocks, which means they have the chance to gain value over time.

Investments in ELSS funds can be deducted from your taxes under Section 80C of the Income Tax Act. You can claim up to Rs 1.5 lakh in a financial year.

Lock-in period: After investing in ELSS funds, the money must be kept in the fund for three years. This lock-in period makes investors think about the long run.

Why choose ELSS funds?

There are several good things about ELSS funds that make them a good financial choice:

Tax advantages: ELSS investments can be deducted under Section 80C, which lowers your taxable income and could save you up to Rs 46,800 a year in taxes if you're in the highest tax band.

Wealth creation: Because they invest a lot in stocks, ELSS funds can make a lot of money over time, beating out traditional tax-saving choices like Fixed Deposits and Public Provident Funds (PPF).

Short lock-in term: The three-year lock-in term is the shortest for tax-saving investments, so you can get to your money quickly, if needed.

Professional management: ELSS funds are run by experienced fund managers who choose the best investments for your account and make sure they grow.

How to choose the best ELSS funds?

Putting money into ELSS funds is a simple process. Here are the steps to begin:

Choose a reputable financial institution: If you want to invest in ELSS funds, choose a financial institution or fund house that you can trust. ICICI Bank is one of the primary financial institutions that offer ELSS funds.

Finish your Know Your Customer (KYC) process: Before you can invest in Mutual Funds, you need to make sure that you have finished the KYC process. This process confirms who you are and is only needed once.

You can choose ELSS funds by checking out the different ELSS funds offered by your bank. When making your choice, think about things like the fund's past performance, the expertise of the manager and your financial goals.

Choose the type of investment you want to make: A lump sum or a Systematic Investment Plan (SIP). SIP lets you spend set amounts of money at regular times, which encourages disciplined investing.

Send in the application: The banking institution will give you an application form to fill out. You can also purchase it through their website or mobile app.

Payment: Put the money you want to put into the ELSS fund of your choice. If you chose an SIP, make sure you have enough money in your bank account to make regular payments.

Keep an eye on your investment: Keep an eye on how your ELSS fund is doing over time. Through their platforms, most financial institutions keep you up to date on your investments on a daily basis.

The tax advantages of investing in ELSS funds

Investing in ELSS funds can help you save a lot on taxes:

Section 80C Deduction: If you invest in ELSS funds, you can get a deduction under Section 80C of the Income Tax Act. This lets you lower your taxable income by the amount you spent, up to a maximum of Rs 1.5 lakh per financial year. The money saved will not exceed Rs 46,800, depending on the tax bracket.

Long-term Capital Gains (LTCG) Tax: ELSS investments are locked in for three years. Any gains made after this time are considered LTCG and are taxed at a rate of 10% on amounts over Rs 1 lakh.

How to pick the best ELSS fund

Choosing the right ELSS fund is very important for the success of your investment. When making your choice, here are some things to think about:

Past performance: Look at how the fund has done in the past to judge its track record.

Expertise of the Fund Manager: Find out how much experience and knowledge the fund manager has in handling equity portfolios.

Diversification: To lower your risk, look at how the fund is spread out across different businesses and sectors.

Investment goals: Figure out what you want to do with your money and how much risk you are willing to take.Risks in Mutual Funds

Putting your money into ELSS funds is a smart way to save on taxes and get rich at the same time. People who want to invest for the long run should consider these funds because they offer both, the chance for capital growth and tax breaks. Making sure you choose the right ELSS fund and sticking to your investment plan will help you reach your financial goals and protect your future finances. Don't forget that even though ELSS investments might pay off, you should talk to a financial advisor and be diligent before investing.