Tax saving instruments always have an integral part of financial planning. People who know how to manage their money are aware that they need to adequately invest in tax saving instruments in order to make sure that they do not ending up giving the government in the form of taxes. Why give your hard earned money to the government when you can invest it wisely and even expect decent capital appreciation?
Thanks to the introduction of tax saving schemes like ELSS investors can not just save tax, but also expect far better capital gains as compared to conservative tax saving instruments.
What is Equity Linked Savings Scheme?
ELSS can be an ideal option for saving tax and gaining exposure to the equity market. Investors can choose from either the dividend option or a growth option. Since ELSS invests in equity, which has a higher risk, it gives investors a chance to build wealth over a long investment horizon. Investors should bear in mind that ELSS is a mutual fund investment scheme and returns from mutual fund investments aren’t guaranteed.
ELSS comes with a minimum lock-in period of three years. Investors can either withdraw their investment amount post the minimum lock-in period or can continue to stay invested, depending on their personal choice. Three year lock-in period means investors cannot withdraw or redeem their investments for a minimum of three years. Anyone who wants to save tax can claim a deduction of up to Rs. 1.5 lakh annually in ELSS, thus reducing their overall taxable income. There is no upper limit for investing in ELSS, and one can invest through SIP or lump sum depending on their financial situation.
Equity Linked Saving Scheme or ELSS is a tax saving mutual fund scheme that allows investors to claim tax benefits worth Rs. 46,800 with an investment of up to Rs. 1.5 lakh as per Section 80C of the Indian Income Tax Act, 1961. ELSS invests in equity markets, making it a moderately high-risk scheme.
What is SIP?
A Systematic Investment Plan is one of the ways to make an investment in ELSS funds. Investors can either make a onetime lumpsum investment or opt for SIP. When you make a lumpsum investment you end up investing the entire investment amount right at the beginning of the investment cycle. On the other hand, a Systematic Investment Plan is an easy and hassle free way to invest in ELS. If you are a KYC compliant individual, you can invest in ELSS via SIP from the comfort of your home or office. Investing has become so easy that you can start investing in ELSS funds via SIP using a laptop or a smartphone with a decent internet connection.
Why should you consider investing in ELSS via SIP?
To start investing in ELSS funds via investors first need to instruct their bank and allow auto debit towards their SIP investments. Once you complete a one time mandate with your bank and decide the monthly SIP, every month on a fixed date a predetermined amount will be debited from your savings account and electronically transferred to the ELSS fund. One good thing about SIP is that investors do not need a large investment amount to start investing in ELSS funds. Some fund houses offer a monthly SIP plan as low as Rs. 500. ELSS comes with a statutory lock in period of 36 months. If you wish to inculcate the discipline of regular investing, then SIP might be the way to go.
Investors who are new to mutual funds should consult a financial advisor before investing.