How to Invest In Tax Saving ELSS Mutual Funds ?

Equity-linked savings scheme funds invest in a diversified portfolio of equity securities and have a lock-in period of three years. These funds are also called tax-saving mutual funds because they offer an exemption under the Income Tax Act.Investing in ELSS funds is a great way to save on taxes. Not only do you get to avail of the tax benefits, but you also get to earn returns on your investment. Moreover, since these funds invest in equity securities, they have the potential to generate higher returns than other fixed income instruments such as bank deposits or government bonds.But it is important to note that such funds are subject to market risks. Hence, there is no guarantee of returns. You may get back less than what you invested.

Some of the key features and benefits of ELSS funds are as follows:

• ELSS funds have a lock-in period of three years, which is shorter than other tax-saving investments such as PPF or NSC.
• ELSS funds offer equity exposure. Hence, they have the potential to generate higher returns than other fixed-income instruments such as bank deposits or government bonds.
• You can make investments in these funds via a lump sum or systematic investment plan (SIP). Most ELSS funds allow you to start a SIP with as little as Rs. 500 per month.
• A minimum of 80% of the assets of an ELSS fund must be invested in equity and equity-related instruments. This ensures that ELSS funds have high growth potential.
• ELSS funds offer the benefit of compounding, which means that your returns are reinvested and multiplied.
• Withdrawals from ELSS funds are taxed at your marginal rate if made after three years.
• There is no maximum tenure for ELSS funds, which means you can stay invested for as long as you want.

As discussed earlier, ELSS funds offer tax benefits under Section 80C. This section provides a deduction of up to Rs. 150,000 from an individual’s taxable income. This deduction is available for investments made in specified equity-linked saving schemes, including ELSS mutual fund s.The deduction is available for investments made in the financial year and can be claimed in the following assessment year.First and foremost, the investment must be made in the financial year for which the deduction is being claimed. Secondly, the investment must be made in a specified equity-linked saving scheme that is approved by the Central Government.Lastly, the deduction can only be claimed for investments up to Rs. 150,000 in a financial year. Any investment above this limit will not qualify for a deduction under Section 80C.

There are two prominent reasons why you should invest in equity-linked savings schemes.

1. Diversification: ELSS funds invest in a diversified portfolio of equity securities. Hence, they offer the benefit of diversification.
2. Investment options: You can invest in these funds based on your financial standings. That is, you can choose to invest a lump sum amount or through a systematic investment plan (SIP).

Now that we know the features and benefits of ELSS funds, let’s look at how you can invest in the best taxsaving mutual funds .

• The first step is to understand your financial goals and risk appetite. This will help you choose the right investment option. If you are looking for long-term capital growth, then an equitylinked savings scheme is a good option for you. On the other hand, if you are risk-averse and looking for stability, then fixed income instruments such as bank deposits or government bonds may be a better option.
• Once you have decided on the investment option, the next step is to choose the right fund. There are several factors that you need to consider while choosing a fund, such as the fund’s investment objective, performance history, asset allocation, and expense ratio. You can also seek the help of a financial advisor to choose the right ELSS fund for you.
• The last step is to invest in the chosen fund. You can do this through a lump sum or systematic investment plan.