How to Invest in ELSS Mutual Funds

Discover the ins and outs of investing in ELSS Mutual Funds, including tax-saving benefits and investment strategies.
How to Invest in ELSS Mutual Funds
3 mins read
14 Mar 2024

Equity Linked Savings Schemes (ELSS) present a smart way to grow wealth while enjoying tax benefits. This guide will help you understand the basics of investing in ELSS mutual funds, ensuring both financial growth and tax efficiency.

Maximising tax is a crucial aspect of financial planning. Among various options, ELSS stand out as a compelling avenue for individuals seeking to grow their wealth while enjoying tax advantages under Section 80C of the Income Tax Act. This article will help you understand the basics of investing in ELSS mutual funds. Offering insights into their features, benefits, and the step-by-step process of investment.

ELSS funds, characterised by their equity exposure and relatively short lock-in period of three years, present an attractive proposition for both seasoned investors and beginners alike.

What are ELSS Mutual Funds?

ELSS, or Equity Linked Savings Scheme, is a type of mutual fund investment plan offering tax benefits under Section 80C of the Income Tax Act, 1961. ELSS primarily invests in equities and equity-related instruments, making it ideal for tax-saving and wealth-building purposes.

Features and benefits of ELSS mutual funds

  • Tax saving: ELSS investments are eligible for tax deduction under Section 80C of the Income Tax Act, up to Rs. 1.5 lakhs per annum. This tax benefit reduces the taxable income, helping investors save on taxes while building wealth for the future.
  • Equity exposure: ELSS funds allocate at least 80% of their assets in equity and equity-related instruments. This exposure to the equity market offers the potential for higher returns over the long term, making ELSS an attractive option for investors seeking capital appreciation.
  • Lock-in period: ELSS investments come with a mandatory lock-in period of three years. While this may restrict liquidity in the short term, it encourages investors to adopt a long-term investment horizon, aligning with the objective of wealth creation through disciplined investing.
  • Diversification: ELSS funds invest in a diversified portfolio of equity stocks across different sectors and market capitalizations. This diversification helps mitigate risk by spreading investments across various assets, reducing the impact of volatility in any single sector or stock.
  • Liquidity: Despite the lock-in period, ELSS funds are open-ended mutual fund schemes. This means that investors have the flexibility to redeem their units after the completion of the lock-in period, providing liquidity when needed.
  • Systematic Investment Plan: Investors can opt for SIPs to make disciplined investments in ELSS funds. SIPs allow investors to invest a fixed amount at regular intervals, helping inculcate a habit of regular saving and investing while benefitting from the power of compounding over time. SIPs also offer rupee cost averaging, enabling investors to buy more units when prices are low and fewer units when prices are high, thereby reducing the average cost per unit and potentially enhancing returns over the long term.

Disadvantages of Investing in ELSS

Investing in Equity Linked Savings Schemes (ELSS) offers various advantages, but it's essential to consider the potential drawbacks as well. Here are some disadvantages of investing in ELSS:

  • Market risk: ELSS invests predominantly in equity and equity-related instruments, making it susceptible to market fluctuations and volatility. While equities have the potential to offer higher returns over the long term, they also carry higher risk compared to debt instruments. Investors should be prepared for the possibility of fluctuations in the value of their investments, especially during periods of market downturns.
  • Uncertain returns: Unlike fixed-income investments such as fixed deposits or bonds, the returns from ELSS are not guaranteed. The performance of ELSS funds depends on the performance of the equity markets and the fund manager's investment decisions. Investors may experience fluctuations in returns, and there is no assurance of achieving the desired investment objectives or target returns.
  • Limited investment options: ELSS funds primarily invest in equities and equity-related instruments, which may not suit every investor's risk profile or investment preferences. Investors looking for a more conservative or diversified investment approach may find the concentrated equity exposure of ELSS funds unsuitable for their investment needs.

How to invest in ELSS mutual funds on Bajaj Finserv platform

formInvesting in ELSS mutual funds on the Bajaj Finserv platform is quite simple and hassle-free. Follow these steps to start your SIP investment journey:

  1. Visit the Bajaj Finserv website or app and navigate to the ‘Mutual funds’ section.
  2. Click on INVEST NOW.
  3. Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list.
  4. All the mutual funds of the particular category, in this case ELSS funds will be listed, along with the minimum investment amount, annualised return, and rating.
  5. Get started by entering your mobile number and sign in using the OTP.
  6. Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video.
  7. Enter your bank account details.
  8. Upload your signature and provide some additional details to continue.
  9. Choose and select the mutual fund that you want to invest in.
  10. Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’.
  11. Select your payment mode i.e., Net Banking, UPI, NEFT/ RTGS.
  12. Once your payment is done, the investment will be complete.

Conclusion

By choosing the right ELSS funds and maintaining a long-term perspective, investors can achieve their financial goals while enjoying tax benefits. It is crucial to research and select ELSS funds carefully, staying informed about market trends to make informed investment decisions.

Calculate your expected investment returns with the help of our investment calculators

Investment calculator

SIP Calculator

Lumpsum Calculator

FD calculator

SDP calculator

Gratuity Calculator

Step Up SIP Calculator

RD Calculator

Sukanya Samriddhi Yojana Calculator

PPF Calculator

EPF Calculator

 

 

Frequently asked questions

How do I deposit money into ELSS mutual fund?

Deposit funds into ELSS mutual funds via online platforms, mobile apps, or directly through the fund house. Choose your preferred mode, fill out necessary forms, and transfer funds accordingly.

Is ELSS mutual fund taxable after 3 years?

Yes, ELSS mutual funds are subject to capital gains tax after 3 years. However, gains up to Rs. 1 lakh annually are exempt from tax under Section 80C of the Income Tax Act.

Are returns from ELSS mutual funds tax-free?

Yes, returns from ELSS mutual funds are tax-free. However, capital gains exceeding Rs. 1 lakh in a financial year are subject to long-term capital gains tax at 10%.

What is the average return on ELSS mutual fund?

The average return on ELSS mutual funds varies based on market conditions and fund performance. Historically, ELSS funds have provided returns ranging from 12% to 15% annually over the long term.

Can I invest in 2 ELSS mutual funds?

Yes, you can invest in multiple ELSS mutual funds to diversify your portfolio and spread risk. However, ensure that your investment choices align with your financial goals and risk tolerance.

Is ELSS good or not?

ELSS mutual funds offer potential for high returns along with tax benefits under Section 80C. They are suitable for investors seeking wealth accumulation through equity investments with a lock-in period of 3 years and tax savings alongside.

Show More Show Less