Investors often seek financial instruments that offer both wealth creation and tax-saving advantages. While numerous options exist, many either generate taxable returns or require a lengthy lock-in period. This is where Equity-Linked Savings Schemes (ELSS) stand out. ELSS is a category of mutual funds that offers the growth potential of equities and also provides tax benefits under Section 80C of the Income Tax Act. In this article, we’ll guide you through a step-by-step process to invest in the top ELSS funds online.
What is an ELSS Fund?
An ELSS fund is a type of diversified equity mutual fund that primarily invests in equity and equity-related instruments. What makes ELSS stand out is its dual benefit: wealth generation and tax deduction. ELSS funds come with a mandatory lock-in period of three years, during which the funds cannot be redeemed. This lock-in feature not only encourages long-term investing but also offers tax benefits..
Types of ELSS Funds
ELSS funds generally fall into two main categories: growth funds and IDCW funds.
Growth Funds: These funds focus on capital appreciation over the long term. Instead of receiving periodic payouts, the returns are reinvested within the fund, helping the investment to grow. Investors realise the full benefits when they redeem their units after the lock-in period, making growth funds ideal for wealth creation over time.
IDCW Funds: IDCW stands for Income Distribution cum Capital Withdrawal. SEBI introduced this term in April 2021 to replace “Dividend Option” in mutual funds. In these funds, investors receive regular income payouts. However, IDCW payouts are treated as “Income from Other Sources” for tax purposes. Additionally, if the payouts exceed ₹5,000 in a financial year, a 10% Tax Deducted at Source (TDS) is applicable.
Steps to Invest in ELSS Funds Online
The following are the steps to invest in top ELSS funds online.
1. Choose Appropriate ELSS Funds
Begin by researching and shortlisting ELSS funds that align with your financial goals, risk appetite, and past performance. Look for funds with consistent returns and good ratings from a reputable agency.
2. Complete the KYC Process
To invest in mutual funds, you need to complete the Know Your Customer (KYC) verification. If you are a first-time investor, submit your identity and address proofs online or offline through a registered KYC agency.
3. Choose the ELSS Fund that Fits your Needs
As soon as the KYC step is done, you can choose the ELSS fund that suits your needs. Afterwards, learn more about the fund’s objective, composition and the expenses the fund will incur.
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4. Calculate the Investment You Can Afford
Decide the sum you want to invest, while considering your goals and the maximum allowed amount in Section 80C (₹1.5 lakh per year). You can decide to invest in one lump sum or spread your investments in monthly instalments through a SIP.
5. Finish the Required Application Form
Be sure to provide all your personal and financial data on the online application form. Make sure the information is correct to prevent your investment from being delayed.
6. Submit Necessary Documents
Upload your KYC documents and any other required paperwork as per the fund house’s guidelines. Ensure all documents are clear and valid.
7. Choose Your Payment Method
Select a convenient payment mode such as net banking, UPI, debit/credit card, or electronic fund transfer to make your investment.
8. Acknowledge the Lock-In Period
Understand and accept that ELSS funds come with a mandatory lock-in period of 3 years. During this time, you cannot redeem your investment.
9. Monitor Your Investments Regularly
Use mutual fund apps or online platforms to track your ELSS fund’s performance. Monitoring helps you stay informed and make necessary adjustments as per market conditions or changes in your financial goals.
10. Make Redemption Decisions
After the lock-in period ends, assess your financial needs and the fund’s performance to decide whether to redeem your investment or continue holding it.
Additional Tips for ELSS Investors
The following are some tips you may follow before investing in ELSS funds:
- Start Early in the Financial Year: Starting your ELSS investments early gives you more time to take advantage of SIPs and avoid last-minute tax-saving rushes.
- Don’t Invest Just for Tax Saving: While tax benefits are attractive, prioritise fund quality and long-term growth potential over just tax deductions.
- Be Consistent: Make ELSS a regular part of your investment strategy. Like other options within mutual funds India, consistency can help build substantial wealth over time, rather than making one-off investments for tax purposes alone.
Conclusion
Investing in ELSS funds is a smart way to achieve dual benefits of wealth creation and tax savings under Section 80C. By following the step-by-step process outlined above, you can confidently begin your investment journey with clarity and discipline. Platforms like Tata Capital Moneyfy simplify this entire experience by providing easy access to top ELSS funds, seamless KYC verification, secure payment options, and tools to monitor your investments conveniently, all in one place. Remember, consistent monitoring and a clear understanding of your financial goals will help you maximise the benefits of ELSS investments while staying aligned with your long-term wealth objectives