How to invest in ELSS in 2022

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Introduction

An equity-linked savings scheme offers two benefits - wealth accumulation and tax deduction- making it a highly sought-after addition to a financial portfolio. With a lock-in period of just three years, these instruments have the potential to provide among the highest returns compared to all the other 80C tax-saving options. Curious about how to invest in ELSS in 2022? Here's a guide to get you started.

Steps to invest in ELSS Offline

  • Step 1: You can either choose to invest via your broker or by visiting the nearest branch of your mutual fund's AMC.
  • Step 2: To invest, you will have to carry and present copies of documents such as your Aadhar card, passport photographs, income proof, identity proof, address proof, and others as requested by your AMC officer.
  • Step 3: Submit documents and fill out paperwork or provide details regarding your investment tenure, type of investment (lump sum or KYC), amount, and payment mode for investing.

Steps to invest in ELSS online

  • Step 1: Visit the mutual fund company website, the registrar and transfer agent website, or the online platform for the mutual fund you are interested in.
  • Step 2: Register onto the website using your email, Aadhar card, PAN card, mobile number, and whatever KYC details are necessary.
  • Step 3: Select the plan you want to invest in. Choose between direct or regular plans and consider growth or dividend payout options. Also, determine whether you plan on investing a lump sum or SIP.
  • Step 4: Pay your investment amount from a selected payment mode.

Key features to look at before investing in ELSS

  • Tax implications: An equity-linked savings scheme operates under Section 80C as a tax-saving instrument. You can claim a tax liability of up to ₹1.5 lakhs each year and save roughly ₹46,800 in taxes per year from an ELSS. Out of all mutual funds, this is the only kind eligible for tax benefits1 under Section 80C. It is important to account for these tax implications before you invest in an ELSS scheme of your choosing so you can make the most of it.
  • Dividend option: Determine whether your ELSS scheme will pay your dividends. Estimate how often and when the dividend payouts will begin if you are specifically choosing a scheme for its dividend payout option. Some ELSS schemes are growth options and do not pay any dividends, so it is important to do your research to opt for a plan you prefer.
  • Growth option: Alternative to the dividend option, some ELSS schemes are geared more to wealth accumulation and simply grow your funds rather than paying out regular dividends. This option is more geared towards those individuals not looking to supplement their income and focus on wealth creation. Ensure you account for this if you prefer a growth ELSS to dividend payouts.
  • Max limit of investment: One of the biggest questions to ascertain before investing is your investment amount. Note down the maximum amount your ELSS will accept as an investment, either as a SIP or a lump sum amount, before investing. Based on this, you can compare different plans that give you more leeway in how much you plan on investing.
  • Minimum investment required to get started: Similarly, most ELSS mutual funds will have a minimum investment amount. This could be as low as ₹500 per month as a SIP or ₹10,000 as a lump sum. Before selecting your ELSS, determine whether you are comfortable with the minimum and maximum investment range provided by the scheme.
  • Lock-in period: All ELSS schemes have a lock-in period of three years. Note that you will not get the option to withdraw your investment option before this lock-in period ends. This helps in generating compounded returns. ELSS funds have the lowest lock-in period compared to other instruments.
  • Risk factor: As ELSS funds tend to invest in equity instruments, they can have risks similar to those of stock investments. However, this does not imply that all ELSS schemes are high-risk instruments. Ensure your ELSS risk is aligned with your investment goals and risk appetite.
  • Market performance: One of the main drivers of a good investment is its performance in the market historically. Ensure you look at long-term charts as your investment will have a three-year lock-in. Seek out an ELSS fund with consistent returns over a long timeframe.

Where to open an ELSS account?

You can have an ELSS account through your Online Investment Services Account. Aditya Birla Capital is one such excellent investment platform to track and invest in an ELSS of your choosing. You could also choose a brokerage or bank that gives you access to direct mutual funds to invest in ELSS.

Frequently Asked Questions

  • What is ELSS?

    An ELSS stands for equity-linked savings scheme. It is a type of mutual fund that invests in equity instruments while offering tax-deductible benefits under Section 80C.
  • How to invest in ELSS?

    You can invest in ELSS through your broker, using an online investment services account, or offline by visiting a mutual fund kiosk.
  • Is ELSS tax-free?

    ELSS offers benefits under Section 80C as a tax-saving instrument. You can claim a tax liability of upto ₹1.5 lakhs each year and save roughly ₹46,800 in taxes per year from an ELSS.
  • How to get an ELSS tax return?

    When you file your income tax returns, you can claim deductions on investments upto ₹1.5 lakhs on your ELSS investment for that fiscal year. Ensure all supporting documents are filed with up-to-date and accurate information provided.
  • Is ELSS safe?

    ELSS is a great wealth-generating tool, but it is subject to market risks, as any mutual fund is. You cannot be assured of your returns as the market constantly fluctuates, but keeping your funds in an ELSS has historically proven to be a highly profitable addition to financial portfolios.
  • Is ELSS covered under 80C?

    Yes, it is. ELSS offers benefits under Section 80C as a tax-saving instrument. You can claim a tax liability of upto ₹1.5 lakhs each year.
  • Is a demat account required for ELSS?

    No, you do not necessarily need a Demat account to invest in ELSS or other mutual funds schemes.
  • Can I invest in ELSS without a demat account?

    Yes, you have the option to invest in mutual funds like ELSS without having a Demat account.
  • Can we open ELSS through bank account?

    Yes, in some cases, you have the option to invest in an ELSS using a bank account.

Disclaimer:

1 Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
ADV/6/22-23/465

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