Offering dual benefits of tax-saving and wealth accumulation over long term, equity-linked savings schemes or ELSS have become immensely popular with Indian investors. Despite heightened volatility in the markets following a series of micro and macro-economic events such as depreciating value of the rupee, USChina trade war, assembly elections and widening current account deficit, equity inflows including ELSS have witnessed a steady rise.
It is particularly this time of the season, the last quarter of the financial year when tax-planning takes precedence above everything else, investors look forward to investing in ELSS to save taxes. If you are looking to invest in ELSS to lower your tax liability and build a sizeable corpus for future goals, you can do so easily with these steps.
Step 1: Be KYC-compliant
The first step towards investing in mutual funds including ELSS is to be KYCcompliant. Being KYC-compliant is mandatory as per the Prevention of Money Laundering Act (PMLA).
All you need to do is visit an AMC’s or registrar’s (CAMS/Karvy etc) office or any financial advisor. You can locate your nearest IDFC MF office here and CAMS office here. Take the KYC application form, fill it and submit it along hard copies of below documents.
- A passport-sized photograph
- PAN card
- Identity proof such as your Aadhaar, passport, voter id, or driving license
- Address proof
- You need to submit the self-attested copies and produce originals for verification.
Step 2: Calculate how much to invest
Once KYC formalities are over, the next step is to calculate the amount you wish to invest. Note that while the minimum amount that you can invest is Rs. 500, there’s no cap on the maximum amount. It is important to note that the maximum amount eligible for tax exemption in ELSS is Rs. 1.5 lakhs in a fiscal. Exemption is allowed under section 80C of the Income Tax Act, 1961. Take stock of your finances and have a blueprint of your present and future commitments before zeroing-in on the amount you wish to invest.
Step 3: Select fund
Selecting an ELSS fund is probably one of the most vital aspects of investment. While ELSS funds invest primarily in equities, allocations of stocks vary across funds. For instance, while some funds may have more exposure to mid and small cap stocks, others may be more inclined towards large caps. Though large caps are more stable than mid and small caps, the latter holds the potential to be more rewarding in the long run. While risk appetite is one criterion for choosing a fund, it’s essential to opt for a fund that has performed well across market cycles and has beaten its benchmark index consistently.
Step 4: Choose investment mode
The last step involves choosing the mode of investment. There are two ways to invest in ELSS – systematic investment plans (SIPs) and lump sum. In SIP, a fixed amount of money is deducted from your bank account every month and invested in the selected fund. On the other hand, lump sum involves investing a chunk at one go in the chosen fund.
While SIPs help you spread out the risk over time, lump sum is a prudent choice incase you have an investible surplus left to exhaust under section 80C or have received windfalls through bonuses and otherwise. Choose the mode that best aligns with your financial goals, cash flow and investment horizon.
With just a few days left to invest in tax-saving instruments, kick-start your ELSS investment by visiting https://savetax.idfcmf.com
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