Equity-Linked Savings Scheme (ELSS) funds are a unique investment product on two counts. First, they are the only type of mutual funds that offer tax benefits. Second, out of all the tax-saving instruments out there, ELSS funds are the most effective owing to their short lock-in period and high returns. So, if you are considering investing in ELSS funds, you are making a good decision. Before we dive into investing in ELSS funds online, let’s go over ELSS funds’ features first.
Features of ELSS funds
- If you invest in ELSS funds, you can claim a tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. This means that if you invest, say, Rs 1.7 lakh in a financial year in ELSS funds, you can deduct Rs 1.5 lakh out of that from your taxable income for the year. This allows you to reduce your tax liability.
- ELSS mutual funds come with a lock-in period of three years which means you cannot redeem your units before this period. However, out of all the tax-saving instruments out there, this is the shortest lock-in period. Public Provident Fund (PPF) comes with a lock-in period of 15 years while the National Pension System (NPS) has a lock-in period until retirement.
- ELSS funds have the potential to earn some of the highest returns compared to other tax-saving investments. This is because ELSS funds are equity mutual funds and primarily invest in equity and equity-linked instruments. Hence, their returns are market-linked and while that means they have a higher risk, it also means that they have the potential to earn returns as high as 15% or more.
Online investing in ELSS funds
You can conveniently invest in the ELSS fund of your choice online from the comfort of your home. You simply need to go to the official website of the Asset Management Company (AMC) you prefer, select the ELSS scheme, and go through the KYC process. Here are some things to keep in mind when investing online in ELSS funds:
- Like with other mutual funds, with ELSS funds you too can either make a lumpsum investment or choose the Systematic Investment Plan (SIP) option. Even if you invest through SIP, you can still claim the ELSS tax deduction. Hence, you can begin investing in ELSS funds with as little as Rs 500 per month.
- While the maximum limit of the tax deduction under section 80C is Rs 1.5 lakh, there is no limit regarding your ELSS fund investment. So, you can choose to invest as much as you’d like as per your investment strategy and financial goals in ELSS funds.
- It’s important to remember that while the investment amount in ELSS funds comes with a tax benefit, the returns on ELSS funds are not tax-free. Capital gains on ELSS funds are considered long-term capital gains and are taxed at 10% without the benefit of indexation. There is one benefit here, however. ELSS funds’ capital gains up to Rs 1 lakh are exempt from tax.
Final words
ELSS funds offer tax-saving benefits and allow you to build wealth at the same time. The process to invest in ELSS funds online is quick and seamless and once you have narrowed down on the scheme, you can begin investing without any delay. ELSS funds also come with all other benefits of equity mutual funds such as diversification and professional management and overall make for a great investment option.