For all beginner investors, it can be challenging to think about balancing risks and returns while choosing various investment options. If you are afraid of risk-taking, you would want the least risk but high returns along with various other benefits like tax deductions. Ideally, there is no such investment avenue that fulfills all these expectations.
However, you can create balance by investing in the ones that offer good returns along with tax benefits. ELSS or Equity Linked Saving Scheme is one such option.
Better known as a tax-saving financial instrument, ELSS funds are mutual fund investment schemes which can help in reducing your tax liability. Under Section 80C of the ITA, you can invest up to Rs. 1.5 Lakh in ELSS funds along with other approved securities and claim it as a deduction from your taxable income.
If you are planning to save taxes for this financial year and want to invest in ELSS funds, you must know about their intricate following 5 features to plan your investments right.
- Major Investment in Equities
A major proportion of the money you invest in ELSS funds is invested in equity-oriented instruments. It means that the returns from your investments are market-linked. You will get the benefits as per the performance of the market.
Since selecting the right instruments for the investment portfolio is a tough task, you must know about these niceties related to ELSS funds.
- Investment Options – Growth or Dividend
While investing in ELSS funds, you get to choose between two investment options – one is the dividend, while the other is growth. If you choose the growth option, you will get a lump sum amount after the lock-in period ends. On the other hand, you get a fixed amount in installments during the lock-in period if you choose the dividend investment option.
You are advised to choose between the two options based on your financial needs. Ask for help from financial advisors, if needed.
- Lock-in Period
In terms of investment avenues, lock-in period is the duration within which you are restricted from selling or withdrawing the invested capital. It varies from one financial instrument to the other.
Particularly for ELSS funds, the lock-in period is three years. It implies that you should invest a specific amount that you won’t need to withdraw for the next three years. Check all your financial liabilities before making any final investment decision.
- Entry and Exit Load
Mutual fund companies will ask you for an amount whenever you plan to join or leave a scheme. Entry load is the fee charged while entering or joining a scheme, while the exit load is the fee you pay when you leave it.
Unlike other mutual funds, ELSS funds have a minimum lock-in period of 3 years, which means withdrawal of investment is prohibited before the lock-in period is completed. Since you do not get the option of premature withdrawal at all, there is no exit load. Also, there is no entry load, as well.
- SIP Based Investment
Maintaining investment discipline often becomes difficult for many. People end up failing to invest regularly and receive lower returns than expected. It is where a Systematic Investment Plan or SIP to invest in ELSS funds helps a lot.
If you cannot invest a lump sum in ELSS funds, choose the SIP mode. This way, you will make disciplined investments and also receive long term returns.
Reap the Rewards of Good Returns with Right Financial Planning
Investment planning is the key to ensure you receive returns you expect from various financial instruments. If you are struggling to plan how to invest your money righteously, call renowned financial advisors like FinEdge for help.
Based on their expertise in financial planning, they will guide you through the process of selecting the right instruments that best fit your investment portfolio.