Investing in equities-linked savings schemes (ELSS) is an excellent way to start first-time investors with mutual funds. Many choose ELSS since, under Section 80C of the Income Tax Act, it offers tax benefits in addition to wealth creation value. If you have never made investments before, this thorough guide will walk you through the ELSS investment process in plain English.
Step 1: Understand What ELSS
Before you start investing, you definitely should be aware of what an ELSS is. An ELSS is one type of mutual fund mostly focused on stocks. As such, it provides a higher rate of return on investment than more traditional tax-saving plans such as PPF or fixed deposits. Apart from the chance of noteworthy profits, ELSS lets you save up to ₹1.5 lakh in taxes per financial year.
Step 2: Know The Lock-In Period
One aspect under consideration should be the lock-in period of an ELSS investment. ELSS locks in three years; hence, if you invest, you cannot withdraw money before then. With a 15-year lock-in, this lock-in term is less than that of other tax-saving options such as the Public Provident Fund (PPF).
Step 3: Choose Between Lump Sum Or SIP
You could invest in ELSS either lump sum or in SIP, the systematic investment plan. Lump sums let one make one big investment at once. This is a great choice if you wish to start straight away and have money saved up. Usually done once a month, SIP helps to facilitate regular, smaller-scale investments. For first-time investors, this is a great substitute since it distributes the money over time, thereby reducing the risk related to market volatility. Creating a systematic investment plan (SIP) also supports consistency of investments and helps to simplify budget control.
Step 4: Choose The Right ELSS Fund
Given the several choices on the market, you have to choose an ELSS fund fit for your financial goals. Look at things like the fund manager’s background, fund house performance, and past three- to five-year history of funds. You can rapidly assess various ELSS funds online before choosing.
Step 5: Complete KYC And Start Investing
Investing in ELSS needs the process of completing the Know Your Customer (KYC) process. This entails submitting documentation such as PAN cards, Aadhar cards, and bank account details. Most of the managers of investments allow you to handle this online. Once your KYC is finalised, you can start investing in the ELSS fund of your choice. New investors would make sense to start SIP in ELSS. You will not have to worry about market timing and can more easily follow your investing plan as you can invest tiny monthly amounts.
Final Words
Investing in ELSS is basically a smart choice for first-time investors wishing to start in the stock market with tax benefits. These simple rules will help you to start making ELSS investments and pursue your financial objectives. Whether you choose a lump-sum commitment or a SIP, the secret is to remain patient and allow your money to increase over time.
