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Financial experts consider mutual funds investments as an effective way of wealth generation. To invest in a mutual fund, one must choose between its various schemes, and ELSS is one of them.
There are several vital aspects of an ELSS mutual fund scheme. So, scroll through to gain an insight into what is ELSS mutual fund, and its other nitty-gritty.
Equity Linked Savings Scheme or ELSS is a diversified equity mutual fund scheme that invests a majority of its corpus into equity or equity-related instruments. In addition, it is the only mutual fund scheme that offers tax benefits to its investors.
Illustrated below are the various features of ELSS funds:
Illustrated below are the steps for how to invest in ELSS:
It is imperative that investors are aware of the tax slab applicable to their income. Moreover, they must calculate their taxable income. Based on these factors, one can choose an ELSS mutual fund that fulfils their specific requirements.
In order to choose an ELSS suitable for you, evaluate the following points:
Past Performance of a Fund - It is of utmost importance that investors check a fund’s past performance before investing. That said, one must note that past performance is not an indicator of future returns. Instead, it only gives one a fundamental idea of probable returns.
Experience of the Fund Manager - Another critical point to evaluate before investing is the experience of a fund manager. It indicates how a fund manager generated returns by navigating the fund through market fluctuations over the years.
Risk Appetite - Like any other mutual fund, investment in ELSS involves risk. Therefore, potential investors must ascertain their risk appetite and the ability to digest losses, if any.
Investment Horizon - It is wise to not view mutual fund investments from a short-term perspective. Rather, one should keep his/her investment horizon longer and be patient to earn significant returns.
Moreover, one should be prepared to stay invested in a SIP for a minimum of 6 to 8 years. According to financial experts, this is the timeframe within which investors will recover any short-term equity losses.
Mutual fund investors are often in a dilemma when it comes to choosing between lumpsum and SIP. However, for an ELSS fund investment, an SIP is often preferred as it helps one average the buying cost per unit. Besides, a lumpsum equity investment can be risky when the market is high.
Given below are the ELSS benefits:
Equity market investments are prone to market volatility. Hence, after investing in equity mutual funds, one must be patient and keep a long-term investment horizon. As a result, he/she need not fret about the daily market fluctuations, which also inculcates disciplined investing.
The compulsory 3-year lock-in period of ELSS mutual funds provides these investments with a growth opportunity, which is necessary for equity-oriented schemes.
When investing in this mutual fund, investors are eligible to claim a deduction of up to ₹1.5 lakhs per in a financial year under section 80C of the Income Tax Act, 1961.
Furthermore, gains earned on the sale of ELSS investments are taxable in the following manner:
Most investors are unaware that ELSS has no upper limit. This implies that you may invest as much amount you want or as much as your risk appetite allows.
Listed below are the things to consider while investing in an ELSS mutual fund:
However, if tax-saving is the only objective, investors can look to other investment options available under Section 80C. ELSS funds invest in equities, which involves risks. So, investors must ensure that they are financially capable of digesting losses, if such a circumstance arises.
|
Scheme Name |
3-Year Returns |
5-Year Returns |
|
Mirae Asset Tax Saver |
19.40% |
20.38% |
|
DSP Tax Saver |
17.08% |
15.99% |
|
ICICI Prudential Long Term Equity |
14.33% |
13.57% |
|
Axis Long Term Equity |
15.69% |
16.18% |
|
Kotak Tax Saver |
16.18% |
15.06% |
*data as on 21 October 2021
ELSS funds offer the perks of equity investments along with tax savings. That said, keep the above-mentioned points in mind before choosing a scheme to make an informed investment decision.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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