Equity-Linked Savings Scheme (ELSS) mutual funds have become a popular investment option for individuals seeking a mix of tax benefits and equity exposure. These mutual funds fall under tax-saving instruments in India and allow you to claim deductions under Section 80C of the Income Tax Act, up to a specified limit. With the introduction of the new tax regime slabs, the relevance of ELSS mutual funds has come into sharp focus for taxpayers wishing to optimize their savings. This article provides a detailed guide on how to start investing in ELSS mutual funds online, addressing the key features, steps, and considerations for successful investing.
Understanding ELSS Mutual Funds
ELSS mutual funds are equity-oriented schemes that invest a majority of their fund corpus in equities and equity-related instruments. These funds come with a lock-in period of three years—the shortest lock-in period among tax-saving options like Public Provident Fund (PPF) and National Savings Certificate (NSC). ELSS allows investors to not only build wealth in the long term but also save on taxes under the old tax regime.
Under the old tax regime, an individual can claim tax deductions of up to ₹1,50,000 on investments made in ELSS under Section 80C, potentially saving up to ₹46,800 (if you fall under the 31.2% tax slab including cess). However, under the new tax regime slabs, individuals cannot claim tax deductions for ELSS investments since it does not provide any exemptions.
Steps to Start Investing in ELSS Mutual Funds Online
Investing in ELSS mutual funds online has become straightforward and convenient with various digital platforms available. Here are the steps you need to follow:
1. Choose Your Investment Platform
There are various online platforms where you can invest in ELSS mutual funds:
– AMC (Asset Management Company) websites.
– Registered investment apps like Groww, Kuvera, and Zerodha Coin.
– Platforms offered by banks.
Choose a platform that is secure, user-friendly, and provides detailed fund performance data.
2. Understand Your Tax Regime and Investment Goals
Before investing, evaluate whether you are following the new tax regime slabs or the old tax regime. ELSS provides a tax-saving benefit only under the old tax regime. Thus, understanding your applicable tax structure helps you assess whether ELSS aligns with your goals.
3. Complete the eKYC Process
To start investing, you need to complete your [Know Your Customer](https://x-k) (KYC) process, mandated by SEBI (Securities and Exchange Board of India). The eKYC can be completed online by providing:
– PAN (Permanent Account Number)
– Aadhaar number or other identity proof
– Bank account details
– Mobile verification
4. Select an ELSS Fund
As ELSS mutual funds vary in terms of their portfolio composition, risk, and historic returns, research funds thoroughly before making an investment decision. Look for aspects like:
– Fund manager expertise
– Past performance (3-year and 5-year returns)
– Expense ratio
– Portfolio diversification
– Ratings by agencies such as CRISIL
5. Choose Lump Sum or SIP Investment
ELSS mutual funds allow you to invest either through a lump sum amount or a Systematic Investment Plan (SIP).
– Lump Sum Investment: A one-time investment, ideal for individuals who can allocate a large corpus upfront. For instance, investing ₹1,50,000 in a lump sum could allow an approximate return of ₹24,000 annually (assuming a 16% rate of return over three years).
– SIP Investment: Enables you to invest smaller amounts periodically (monthly or quarterly). For example, investing ₹4,000 per month for three years could grow to ₹1,92,000, assuming a 16% CAGR (Compound Annual Growth Rate).
6. Monitor Your Investments
Though ELSS mutual funds have a 3-year lock-in period, it is advisable to regularly review their performance and consider staying invested beyond three years for wealth creation.
Tax Calculation: Old vs New Tax Regime
Here’s a comparison to illustrate the tax implications under the old versus new tax regime for ELSS mutual funds:
Old Tax Regime:
If you fall under the 31.2% tax slab and invest ₹1,50,000 in ELSS:
– Tax saving = ₹1,50,000 × 31.2% = ₹46,800.
New Tax Regime:
Investments in ELSS are not eligible for tax deductions. However, returns generated from ELSS mutual funds remain subject to capital gains tax:
– Short-Term Capital Gains (STCG) Tax (for gains within one year): 15%.
– Long-Term Capital Gains (LTCG) Tax (for gains above ₹1,00,000): 10%.
Benefits of Investing in ELSS Mutual Funds
While ELSS mutual funds offer tax-saving benefits under the old tax regime, investors opting for the new tax regime must focus on their wealth creation potential. Being equity-oriented schemes, ELSS helps achieve higher returns compared to fixed-income instruments like FD or PPF, albeit with higher risk. Diversification into large-cap, mid-cap, and small-cap equities also ensures balanced exposure across market segments.
Important Considerations While Investing Online
– Always confirm the credibility of the platform before initiating investments.
– Evaluate the fund’s risk-return profile against your financial goals.
– Understand lock-in period constraints: ELSS units cannot be redeemed before three years.
– Keep in mind that past performance is not indicative of future returns.
Disclaimer
Investing in ELSS mutual funds or any financial instrument involves market risks. Tax-saving benefits are subject to your chosen tax regime. Investors are strongly advised to evaluate the pros and cons of the instrument and consult a financial advisor before making any decision.
Summary:
Equity-Linked Savings Scheme (ELSS) mutual funds are tax-saving equity-oriented schemes allowing deductions under the old tax regime but offering no such benefit under the new tax regime slabs. These funds come with a three-year lock-in period and can be accessed online through platforms like AMC websites and investment apps. To start investing: choose a platform, complete eKYC, select an ELSS fund, decide between lump sum or SIP, and monitor your investments periodically. While ELSS provides higher returns and wealth creation potential compared to fixed-income instruments, it carries inherent risks of equity investment. Calculations show that investments of ₹1,50,000 in ELSS could save up to ₹46,800 tax assuming the 31.2% slab under the old tax regime, while returns are subject to capital gains tax under the new tax regime. Always assess the risks and align your investments to your goals before proceeding.
