Equity Linked Savings Schemes or ELSS is a diversified equity mutual fund which qualifies for tax exemption under section 80C of the Income Tax Act. It has two major advantages which include capital appreciation and tax benefits. ELSS comes with a lock-in period of 3 years. How to invest in ELSS online is a common question asked by many. There are many steps involved mentioned below in the post
ELSS is suitable for all types of investors who do not like to take risks. There is no age limit of starting it, but as always recommended, the earliest you start the better the returns.
According to Income Tax Law in India, every taxpayer is eligible for savings under Section 80C up to Rs. 1,50,000. The guidelines for ELSS investment are laid out by The Association of Mutual Funds in India (AMFI) and the Securities and Exchange Board of India (SEBI).
Let us take an example here.
You have invested Rs. 1 lakh in one year in an ELSS scheme and have the highest tax bracket. The tax saved will be Rs. 30,000 (30% tax slab). Hence the net amount is Rs. 70,000. The amount has been deducted here because you get it back after your investment as income tax benefit and you effectively invested only Rs. 70,000.
Now, let us assume that the equity investment grows at the rate of 15% per annum.
The Investment value at the end of the First year = 1,15,000. The value at the end of the Second year = 1,32,250 and at the end of the Third year = 1,52,087. If the investment is encashed at the end of 3rd year, you will receive Rs. 1,52,087.
The Profit you realized = Rs. 82,08. You invested only Rs. 70000 effectively. Remember the tax saved.
Profit percentage = 117% (For 3 years together)
Return percent per year = 39%
A Return of 39% per annum is not expected in any other form of investment. Hence, ELSS scheme is one of the best investment options.
The main reason for investment is mainly for tax savings but one should get the best returns as well. The investment in ELSS should be organized and planned and it should not charge high expenses. Below are the steps involved in investing ELSS online.
Select the best tax saving mutual fund
Selecting the best tax saving mutual fund is an important step. You should realize that the best performing mutual fund is not the only criteria for selection. It should have all the qualities of being the best ELSS mutual fund in class. The mutual funds you select should not be volatile and the fund manager should be consistent. Make sure you select the funds from a reputed asset management company.
Choosing between Regular and Direct Plans of Tax Savings Mutual Funds Schemes
The regular plan is traditional as it charges a higher expense ratio each year due to the payment to the mutual fund distributor. Whereas the direct plan started a few years back and has a low expense ratio as it does not pay the mutual fund distributor. Both the funds have different NAV but the Direct plan always gives better returns.
Selection of Intermediary
As the ELSS mutual funds are done through intermediaries this is the next important step to take. However, the investment companies also take the investments directly. There are many companies which sell and help you understand how to invest in ELSS online. Lump Sum Investment or SIP in ELSS Mutual Funds
For ELSS, SIP is the best way of investment and will be recommended by all. With SIP the target achievement is faster and quicker. As there is no right time for investment in ELSS one cannot repent on the missed opportunity.
Getting your money back after 3 years
After a duration of 3 years, the investor will have to fill a form of redemption. The money is then credited to your account.