How to start investing in ELSS is something everyone must consider. Not only does investing in an ELSS offer great returns, but it also helps the investor save out when paying tax. Since an ELSS fund invests in Equity, which is where it derives its name from (Equity Linked Savings Scheme), one must stay invested in it for the long term. When deciding on how to start investing in ELSS, the investor must compulsorily stay invested for 3 years. This is due to the lock-in that comes with these funds.
Steps One Must take before Thinking about How to Start Investing in ELSS
- Be Mentally prepared that there will be ups and downs since you are investing in equity.
- Know that you will not be able to redeem the fund for 3 years.
- Educate yourself on how the Stock Market Works to remain confident.
- Know that there are no guaranteed returns. However, equity has outperformed any debt instrument over the long term so that must add to your confidence.
Steps on How to Start Investing in ELSS
Below are the steps on how to start investing in ELSS:
- Pick a popular ELSS plan from any of the available Mutual Fund houses.
- Complete your KYC Process on their website and Link a bank account.
- Pick the mode of payment. This could be either Lumpsum or SIP.
Is ELSS a Good Investment Option?
Yes, ELSS is a great investment option because it enables the investor to be eligible for tax deductions up to Rs. 1,50,000 per annum (Under Section 80C). Through this plan, an investor can save roughly Rs. Rs. 46,800 per year in taxes. Not only that, but the ELSS invests the majority in equity so it holds the potential to beat traditional investments like savings accounts and FDs.
Can I think of How to Start Investing in ELSS if I want to Sell Before 3 Years?
The answer is no, it is not possible to redeem the fund before the lock-in period is complete. This is why it is important to plan ahead before thinking about how to start investing in ELSS.
Can ELSS be Stopped?
Yes, your SIP in an ELSS can be stopped. To do so, contact the mutual fund house. you will be asked to fill in a form and submit it to them after which your SIP will be stopped within the aforementioned number of days.
Can I Hold ELSS after 3 years?
Yes, you can remain invested in an ELSS for as long as you like. There is no rule that you have to redeem your fund.
Is ELSS Safe?
ELSS Funds invest their majority share in equity, which is why they have the factor of market risk However, over the long term, staying invested in the stock market has proven to be less risky. With that being said, the answer to whether ELSS is safe or not depends on your time horizon. The longer your time horizon is, the safer it becomes.
Panigrahi, C. M. A., et al. “A study on performance evaluation of equity linked saving schemes (ELSS) of Mutual funds.” NMIMS Journal of Economics and Public Policy 5.1 (2020). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3522299