How to invest in ELSS funds?
Understand the features of ELSS and the different ways to invest in it
- An Equity-Linked Savings Scheme (ELSS) is a tax-saving mutual fund with a lock-in period of 3 years.
- Investment of up to Rs. 1.5 lakh is deductible (in any financial year) from total annual income under section 80C of the Income Tax Act, 1961.
- You need to be mutual funds KYC compliant to make an ELSS investment.
- An ELSS through the SIP route has more benefits.
Come March, and most of us worry about our taxable income. We comb our accounts folder for receipts from our tax-savings donations made to the local NGO or the information on our insurance plans. Why? That's because all these count as deductibles when calculating our annual taxable income. But what if we were to tell you that you could save taxes and build wealth at the same time?
This article will help you understand how investing in Equity Linked Savings Schemes (ELSS) can allow you to save tax and build wealth and how to invest in ELSS.
Features of ELSS funds
An ELSS is popular as a tax-saving instrument that doubles as a wealth creator. Here are the features of an ELSS:
- Up to Rs. 1.5 lakh of your investment in ELSS is exempted from tax under section 80C of the Income Tax Act, 1961. Please note that the upper limit under the section also includes other tax-saving schemes such as PPFs.
- It has a lock-in period of 3 years, the lowest amongst other tax-saving schemes (under 80C) in India.
- There is no maximum tenure of an ELSS. You can withdraw your investment along with interest at the end of the lock-in period, or you can continue. You can partially redeem units if you need funds. Do note, you can only redeem after the lock-in period ends.
- The income generated from the ELSS's interest is treated as long-term capital gain and taxed according to the prevailing LTCG rate.
- At least 80% of the ELSS corpus is invested in equity or equity-linked instruments.
- The investor can invest a lumpsum amount or choose a Systematic Investment Plan (SIP).
Are you convinced that an ELSS is a tax-saver and wealth builder? Now let us look at how you can invest in one.
Steps to invest in ELSS funds
If you know how to invest in a mutual fund, then you may already know how to invest in ELSS funds as the process is the same. If not, continue reading to learn how easy it is to start investing in an ELSS.
Become KYC compliant
Being KYC compliant has been a norm for quite some time now. The Securities and Exchange Board of India mandates that every mutual fund investor submit their Know-Your-Customer documents to prevent fraudulent practices. All you need is your PAN, address proof, identity proof to complete your KYC compliance process.
Follow these steps to become KYC compliant:
- Apply for an e-KYC verification on your chosen fund house/AMC or bank's website.
- Fill in the details such as your full name, contact number, email I.D.
- Upload scanned identity and address proofs along with your recent photographs (if required).
- Complete the verification process.
- Provide a digital signature for the final processing.
If you prefer to complete your KYC process offline, then follow these steps:
- Download the KYC form from the SEBI website or the website of your chosen AMC/ fund house.
- Fill the application form with all your details.
- Visit the physical branch of the AMC, fund house, or KYC Registration Agency.
- Submit your application form along with your KYC documents.
- Complete the in-person verification process.
That's it; now that you are KYC compliant, you can move to the next step of investing in an ELSS.
Open a mutual fund account and start investing
Once your mutual funds KYC is complete, you can start investing in ELSS. If your bank or AMC has an app, the process to begin investing is faster and more seamless. You can download the app, follow instructions to complete your verification and start investing.
Now that you know how to invest in ELSS to make the most of your hard-earned money take some time to explore your various investment options.
Download digibank to open your savings account and begin your journey to making successful investments.