Today, financial planning is essential for every individual. However, hiring a financial planner for managing your finances could be a costly affair, particularly for low to mid-income level individuals. However, there are several schemes which have been initiated for reinforcing economic development of the country and assisting its citizens to achieve their financial goals and find financial independence. Investment in ELSS tax saving mutual funds is among the most appropriate option available to investors. An ELSS tax saving fund is a type of mutual fund that invests majorly in equities of the companies with a purpose of yielding market-linked returns. Below are some of the important things which one should know about ELSS.

Risk Involved

It’s true that ELSS tax saving mutual funds involves higher risk which is inseparable from the stock market investing. However, there’s an assortment of ELSS schemes which one can choose as per their risk profile. For instance, if you’re not looking for too much volatility, you could opt for funds which stick to steady blue-chips. If one wants better returns and doesn’t mind risk, one could go for funds which invest in smaller-sized companies.

How to Invest

Investors could invest in an ELSS tax saving schemes either in a lump sum or via SIP (Systematic Investment Plan). In case of SIPs, a predetermined amount is deducting from the investor account on a monthly basis which is invested in the ELSS fund. One can invest as low as INR 500 and there’s a cap to investment. Even though there’s no cap on investment, investors can get a maximum deduction of INR 1.5 lakh under section 80C of the Income Tax Act.

To be able to invest in an ELSS fund you need to have a demat account and you can follow the below mentioned steps to open a demat account.

Account Opening Process with

You can open your own Demat Account with all by yourself as its very easy and quick process. All you need to do is to fill up the online form available on their page and their executive would connect with you and assist you further. Also, before beginning to invest in ELSS, you need to open a bank account if you do not have one. It’s is an important step as all the dividends as well as sale value would be credited to the bank account under your name. Further, you need to upload few documents. Below is a list of mandatory documents which you need to upload for opening a demat account online with

a) Passport size photograph

b) PAN card

c) Address proof copies viz. Voter ID, Aadhaar card, driving license, etc.

d) Cancelled cheque

Product Selection

All ELSS funds are diversified funds, which imply that the investments are across several sectors (Banking, FMCG, Auto, etc.) and themes (financials, infrastructure, etc.).  All of these ELSS funds provide income tax relief under Section 80C. It is a common denominator. However,you shouldn’t assume there’s great similarity between funds. You must look at how these funds performed in the past as well in the downturns too. You should decide whether you feel more comfortable with a much diversified portfolio or you prefer a concentrated and focused one.

Why invest in ELSS tax saving mutual funds?

There are primarily two reasons:

Best returns: Compared to other investment alternatives such as 5 years FDs, PPF, etc. ELSS tax saving mutual funds has been generating Inflation-beating returns that won’t just save tax but would also help in growing your wealth simultaneously.

Lock-in period: ELSS offers one of the shortest lock-in periods of 3 years. It implies, unless you’re choosing to stay invested for reaching your long-term financial goals, the money could be withdrawn after the lock-in period. As mentioned, an ELSS investment would stay locked in for a period of three years. Beyond this, one could redeem partly or totally at any time. The proceeds from the ELSS lands directly in the bank account linked with the ELSS fund within a period of three business days. Public Provident Fund (PPF) locks your funds for 15 years and permits only limited and conditional withdrawal before the lock-in period. Moreover, the withdrawal process isn’t that easy or quick. The Employee Provident Fund (EPF) is usually locked till the time you’re engaged in employment. Tax-saving NSC (National Saving Certificates) or FDs (Fixed Deposits) are locked in for five years or even more in some cases. The NPS (National Pension Scheme) is locked until the investor reaches 60 years of age, and permits only limited and conditional withdrawal before the lock-in period. Hence, ELSS tax saving mutual funds is one of the best investment options for investors looking to earn good returns as well as save tax without blocking their funds for a longer period.


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December 2020