As an investor, you’re likely aware of the importance of saving for your future while also minimizing your tax liability. One of the most effective ways to achieve this is by investing in Equity Linked Savings Schemes (ELSS). ELSS investments offer a unique combination of tax benefits, flexibility, and potential for long-term growth. In this article, we’ll take you through a comprehensive guide on how to buy ELSS shares, helping you make an informed investment decision.
Understanding ELSS Investments
Before we dive into the process of buying ELSS shares, it’s essential to understand the basics of ELSS investments. ELSS is a type of mutual fund that invests in equity markets, offering tax benefits under Section 80C of the Income Tax Act, 1961. The key features of ELSS investments are:
- Minimum lock-in period of 3 years
- Tax deduction of up to ₹1.5 lakhs under Section 80C
- Flexibility to invest in lump sum or through Systematic Investment Plans (SIPs)
- Option to invest in diversified equity portfolios
- Potential for long-term growth due to equity exposure
Benefits of Investing in ELSS
ELSS investments offer several benefits that make them an attractive option for investors. Some of the key advantages are:
Tax Benefits
Section 80C Tax Deduction: ELSS investments qualify for a tax deduction of up to ₹1.5 lakhs under Section 80C. This means you can reduce your taxable income, resulting in lower tax liability.
Long-Term Growth
Equity Exposure: ELSS investments are invested in equity markets, providing the potential for long-term growth. This exposure can help your investment grow over time, helping you achieve your financial goals.
Flexibility
Lump Sum or SIP Investment: ELSS investments offer flexibility in terms of investment options. You can choose to invest a lump sum or opt for a Systematic Investment Plan (SIP), allowing you to invest a fixed amount at regular intervals.
How to Buy ELSS Shares
Now that you’re aware of the benefits and features of ELSS investments, let’s move on to the process of buying ELSS shares.
Step 1: Choose an ELSS Fund
With numerous ELSS funds available in the market, it’s essential to choose a fund that aligns with your investment objectives and risk tolerance. Some of the top-performing ELSS funds in India are:
| Fund Name | NAV (₹) | 1-Year Return (%) |
|---|---|---|
| Axis Long Term Equity Fund | 53.45 | 18.23 |
| Franklin India Taxshield | 644.71 | 17.14 |
| ICICI Prudential Long Term Equity Fund | 424.69 | 16.51 |
Step 2: Open a Demat Account
To buy ELSS shares, you need to have a demat account. A demat account is similar to a bank account, but instead of holding cash, it holds your shares in a dematerialized form. You can open a demat account with a brokerage firm, bank, or financial institution.
Step 3: Link Your Bank Account
Once you’ve opened a demat account, you need to link your bank account to it. This will enable you to transfer funds from your bank account to your demat account, allowing you to invest in ELSS shares.
Step 4: Choose Your Investment Option
ELSS investments offer two investment options: lump sum and SIP. If you choose the lump sum option, you’ll need to invest the entire amount upfront. With SIP, you can invest a fixed amount at regular intervals.
Step 5: Place Your Order
After choosing your investment option, you can place an order to buy ELSS shares. You can do this online through your demat account or by visiting the website of the asset management company.
Step 6: Monitor and Redeem
Once you’ve invested in ELSS shares, it’s essential to monitor your investment regularly. After the lock-in period of 3 years, you can redeem your ELSS shares, and the proceeds will be transferred to your bank account.
Tips for Investing in ELSS
To make the most of your ELSS investment, keep the following tips in mind:
Start Early
The Power of Compounding: The earlier you start investing in ELSS, the more time your investment has to grow. Take advantage of the power of compounding to build a sizable corpus over time.
Invest Regularly
Disciplined Investment Approach: Invest in ELSS shares regularly to average out market fluctuations. This will help you avoid market timing and ensure a disciplined investment approach.
Monitor and Adjust
Review and Rebalance: Regularly review your ELSS portfolio and rebalance it to ensure it remains aligned with your investment objectives.
Conclusion
Investing in ELSS shares is a smart way to save taxes while growing your wealth over the long term. By following the steps outlined in this article, you can start investing in ELSS shares and take advantage of the benefits they offer. Remember to choose a top-performing ELSS fund, open a demat account, link your bank account, and invest regularly to make the most of your investment. Happy investing!
What are ELSS investments, and how do they work?
ELSS investments, also known as Equity Linked Savings Schemes, are a type of mutual fund that offers tax benefits to investors. They work by investing a majority of their portfolio in equity markets, generating returns for investors, while also providing tax deductions under Section 80C of the Income Tax Act. This means that investors can claim a deduction of up to Rs. 1.5 lakh from their taxable income by investing in ELSS.
ELSS investments have a lock-in period of three years, during which investors cannot withdraw their money. This allows the fund managers to invest in a diversified portfolio of stocks, bonds, and other equity instruments, generating long-term returns for investors. ELSS investments are a popular choice among investors who are looking to save tax and grow their wealth over the long term.
What are the benefits of investing in ELSS?
One of the primary benefits of investing in ELSS is the tax benefit it offers. As mentioned earlier, investors can claim a deduction of up to Rs. 1.5 lakh from their taxable income, which can help reduce their tax liability. Additionally, ELSS investments have a shorter lock-in period compared to other tax-saving instruments, such as Public Provident Fund (PPF) or National Savings Certificate (NSC). This means that investors can access their money sooner, while still reaping the benefits of long-term investing.
Another benefit of ELSS investments is that they offer the potential for higher returns compared to other tax-saving instruments. Since ELSS investments are invested in equity markets, they have the potential to generate higher returns over the long term. This makes them an attractive choice for investors who are looking to grow their wealth over time.
How do I choose the right ELSS fund for my investment?
Choosing the right ELSS fund can be a daunting task, especially for new investors. The first step is to research and compare different ELSS funds offered by various asset management companies. Look at factors such as the fund’s performance over the past few years, its expense ratio, and its investment strategy. It’s also important to consider the fund’s risk profile and whether it aligns with your individual risk tolerance.
Another important factor to consider is the fund manager’s track record and experience. A good fund manager can make a big difference to the fund’s performance, so it’s essential to do your research and choose a fund with a proven track record. Additionally, consider consulting with a financial advisor or investment expert who can help you make an informed decision.
Can I invest in ELSS through SIP or lump sum?
Yes, you can invest in ELSS through either a Systematic Investment Plan (SIP) or a lump sum. A SIP allows you to invest a fixed amount of money at regular intervals, usually monthly, which can help you average out the market volatility. This is a good option for investors who want to invest a fixed amount regularly and don’t want to time the market.
On the other hand, lump sum investment involves investing a single amount of money in one go. This is a good option for investors who have a lump sum amount available and want to invest it in ELSS. Regardless of whether you choose SIP or lump sum, it’s essential to have a disciplined investment approach and stick to your investment strategy over the long term.
What is the minimum and maximum amount I can invest in ELSS?
The minimum amount you can invest in ELSS varies from fund to fund, but it is typically around Rs. 500 to Rs. 1,000. There is no maximum limit to the amount you can invest in ELSS, but you can only claim a tax deduction of up to Rs. 1.5 lakh under Section 80C.
It’s essential to remember that the minimum investment amount is not the only factor to consider when investing in ELSS. You should also consider your financial goals, risk tolerance, and investment horizon before investing in ELSS.
Can I redeem my ELSS investment before the lock-in period?
No, you cannot redeem your ELSS investment before the lock-in period of three years. This is because ELSS investments are designed to promote long-term investing and help investors achieve their financial goals over time.
Trying to redeem your ELSS investment before the lock-in period can result in penalties and charges, which can eat into your returns. Therefore, it’s essential to have a long-term perspective and invest in ELSS only if you can afford to keep your money locked in for at least three years.
How do I track the performance of my ELSS investment?
You can track the performance of your ELSS investment by logging into your online account or by contacting your investment advisor. Most asset management companies provide online platforms where you can track your investment portfolio, view your account statement, and access other relevant information.
You can also track the performance of your ELSS investment by monitoring the Net Asset Value (NAV) of the fund, which is usually published on the asset management company’s website. This will give you an idea of how your investment is performing over time. Additionally, you can also consult with your financial advisor or investment expert to get a better understanding of your investment’s performance.