Investors have access to multiple investment schemes in the market, but they usually offer taxable returns. If saving tax is your primary reason behind investing, ELSS mutual funds will come to your rescue. Equity Linked Savings Schemes can be referred to as tax-saving mutual funds.
An ELSS fund can help you save tax of up to Rs 150,000 on the invested amount. Moreover, the income you will generate from the funds after a 3-year lock-in period will be taxed at 10% only when the income exceeds Rs 1 lakh. Dive into this article to understand the detailed procedure of investing in ELSS mutual funds and enjoy tax benefits with impressive returns.
Step 1: Select the Tax-Saving Scheme As Per Your Needs
The tax-saving scheme will be dependent on the returns offered by it. For instance, Axis Mutual Fund offered an annual return of over 40% last year. But Escorts Mutual Fund offered an annual return of only 15%.
It is often challenging to predict which mutual fund is the best. But the highest-performing mutual fund of the previous year is highly likely to be the highest-performing fund in the present year as well. You must choose the best mutual fund to enjoy maximum tax deductions.
Step 2: Choose Tax-Saving Schemes Over Regular Mutual Funds
You will come across regular mutual funds as well as tax-saving funds. Regular mutual funds have a high expense ratio because the one distributing the fund demands a payment. But the tax-saving funds don’t have to pay anything to the distributors. The tax-saving mutual fund schemes are direct and have a low expense ratio.
Step 3: Open Your Bank Account
Anyone who wishes to invest in ELSS funds must have a bank account. The dividends collected from the fund will need to be credited somewhere. Therefore, a bank account in the name of the investor is important.
Step 4: Pick an Intermediary or Distributor
You can always deal with the mutual fund company all by yourself. But multiple mutual fund distributors or intermediaries are available nationwide to help you manage your mutual funds. Mutual fund distributors won’t charge any commission from you because the companies they deal with offer them profits for bringing in new clients.
The role of a mutual fund distributor is to invest in a mutual fund on your behalf to help you earn maximum returns. You can always contact an online distributor if you want an easy way to invest in ELSS mutual funds. But before choosing a distributor, you need to ensure they pick an ELSS that benefits you and not them.
Step 5: Choose Between Lump Sum or SIP
Several investors rely on ELSS funds at the eleventh hour to enjoy tax benefits. Since last-minute investors are in a hurry to save taxes, they choose the lump sum investment. But lump sum investments can be extremely risky in a high market.
But ELSS investment schemes are linked to long-term financial goals. Therefore, opting for a Systematic Investment Plan or SIP will average your purchase cost per unit. SIP offers discipline and regularity and also lowers capital risk. Furthermore. SIP ensures that you don’t have to worry about market fluctuations and whether you are investing at the right time.
ELSS funds are better than several tax-saving instruments with great returns and a lock-in period of only three years. You will need only Rs 500 to invest in a tax-efficient ELSS fund. While offering you tax deductions of up to Rs 1.5 lakhs, ELSS mutual funds let you invest as much as you want. Therefore, consider investing in an ELSS fund today!