Why and how to invest in Equity Linked Savings Scheme in 2022

If you have been earning a regular income and have decided that it is time for you to begin your investment journey, you are at the right place. Unlike previous generations, we know that we cannot depend on the possibility of pension and have to create a pension fund for ourselves, especially if we want to retire early, and the best way to do this was to start investing as soon as possible. If you have read The Snowball, which depicts how Warren Buffett managed to grow his wealth thanks to the power of compound interest, you know how important it is to start your investing journey early and stay invested for the longer term. While looking at different investment options, you should consider the possibility of investing in equity linked savings schemes. Here is a primer to help you understand it better. 

What is ELSS?

You would be especially happy to know that investing in an equity linked savings scheme would help you save on your tax outflow since this was the only kind of mutual fund scheme which is eligible for tax deductions under Section 80C of the Income Tax Act. In addition to beginning your investment journey, if you are also looking for a way to limit your tax outflow, then ELSS funds would be the best way to kill two birds with one stone. With 65% of the portfolio being invested in equity and equity-linked securities, ELSS would also allow you the opportunity to participate in the growth of the market, while also offering you protection and stability through the fixed income component. With these aspects in mind, you can consider proceeding with SIP investments in an equity linked savings scheme.

Features of ELSS funds

You may also be attracted by some other features of ELSS funds, which include a short lock-in period of three years. With no upper capping on ELSS funds, you can invest as much as you can spare from your monthly salary, thus accumulating wealth for the longer term while also availing inflation-beating returns in a tax-efficient manner.

Tax benefits offered by ELSS funds

By investing in ELSS funds, which could also be termed as tax saver mutual funds, you would have the option of claiming a tax rebate worth up to Rs. 1,50,000, thus ensuring savings of up to Rs 46,800 a year. And this benefit was on top of the returns you would earn. If the yearly tax outflow is weighing on your mind, ELSS would appear to be an excellent option for your requirements.

How to Invest in ELSS

Now that you have decided on investing in an equity linked savings scheme, the only thing left to do is begin the journey. You can follow these steps while investing in ELSS –

1. Investment route: The next decision is whether to invest via lump sum or SIP. If you do not have much in the form of savings, and want to create a portfolio capable of benefiting from rupee cost averaging and compound interest, you should go ahead with the SIP investment route.
2. Choosing the scheme: You can go online and undertake a comparative analysis of the equity linked savings schemes being offered by the top 10 fund houses in India. From the list of these ELSS funds, you can choose the scheme best suited for your requirements, based on the historical and expected returns as well as the expertise of the fund managers.
3. Setting up an account: You can choose how you want to invest, with your options ranging from the websites of mutual fund houses to brokers and investment apps which are easily accessible on your smartphones. Once you decide, you can make a profile on one of the popular options, complete the KYC requirements, and set up the ELSS SIP with monthly deductions as per your comfort. You have the option of increasing or reducing the SIP amount at a future date, based on your salary and other personal aspects. Once the set-up is complete, you can opt for the auto-deduction mode and choose the date for deduction, based on when you would be receiving your salary, thus completing the process of investing in an ELSS fund.   

For all of you who are concerned about the monthly tax outflow and wish to start investing while also limiting the tax drain, an equity linked savings scheme is the best option for you. Once you decide on the plan that best suits your investment profile and requirements, all you have to do is start an SIP and then sit back and relax as the tax saver mutual fund does the dual job of helping you accumulate wealth while also limiting your tax outflow. 

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a onetime KYC process. Investor should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms 

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