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Over time, ELSS has become one of the most popular investment options. Not only for beginners but also for experienced investors. It helps taxpayers deduct up to ₹1.5 lakhs in taxes in the financial year within Section 80C of the Income Tax Act of India.
Equity Linked Savings Scheme (ELSS) has a lock-in period of 3 years. It is the shortest lock-in period compared to other tax-saving schemes. Be it Linked Insurance and National Pension schemes. ELSS is also known to offer better returns over the long term compared to investment instruments falling under Section 80C.
Seven golden tips to maximize ELSS returns
ELSS returns are market-linked, and hence, it can be difficult to predict your returns. However, there are certain parameters that you can consider in order to maximise your returns. Let’s look at these below:
Make use of the short lock-in period that ELSS offers. While ELSS funds have a lock-in period of three years, they also offer higher returns than other tax-saving options. Investing in ELSS as a part of your tax planning regime can help you save up to over ₹ 46,000 in tax.
Worried about lumpsum investment? You can opt for a SIP in an ELSS scheme for long-term savings. After completing the 36-month (3-year) lock-in period, start a Systematic Withdrawal Plan (SWP) from the 37th month.
The withdrawal plan can be altered as per different ELSS schemes. Since the ELSS lock-in period ends at three years, you can withdraw the number of units purchased three years ago.
Using this smart tip, you can make your ELSS investments self-sustaining without investing from your income. The first-month amount is withdrawn in the 37th-month ELSS investment. This is done without moving your budget for new investments.
ELSS funds are a tax-saving strategy. They enable the investors to sell the units of the funds that have increased in value. This helps investors realize a gain of up to ₹1 lakh, a sum exempt from tax. This strategy also stops the profit amount from exceeding 1 lakh as that leads to 10% taxation.
Investors can use these profits to repurchase new units to maintain the position of their ELSS fund. The lock-in period of ELSS indicates that an investor cannot redeem the unit profits before three years of the allotment date.
You can align your ELSS investment with mid-term financial goals for maximised profits. Predetermine your financial goals and plan your investment strategy accordingly. Start by noting down your plans three years down the line, additionally outline the monetary requirement. Next, plan your Systematic Withdrawal Plan (SWP) to get the desired funds once your lock-in period ends.
Invest in the best ELSS mutual fund to benefit from maximum returns. These returns are based on historical data of the last five to ten years, the track record of the mutual fund, and the fund manager's expertise. It also depends on the expense ratio, risk measures, and portfolio allocation.
Studying these aspects helps choose a profitable ELSS fund. You can also use these parameters to compare similar ELSS mutual fund schemes.
It is ideal to invest in an ELSS fund through SIP. But you must know that every SIP will be locked in for three years from the investment date.
Let’s understand this concept with an example. If A starts a SIP of ₹2000 every month from June 2020 for one year, the first instalment will be locked in till June 2023. This has to be a well-thought-through decision since the money will not be available for the specified period of time.
Investors must make informed decisions without being affected by only the short-term performance of mutual funds. Factors like the fund’s performance history, consistency, and stability must be considered. Remember, long-term investments typically equals more gains.
Conclusion
The new tax regime makes ELSS look like an average investment instrument. But, what matters is that ELSS has helped investors achieve their financial aims with its profitable nature. ELSS also offers better returns than instrument tools like fixed deposits and bonds. Investing in ELSS funds offers stable investment portfolio profits and a varied portfolio. You may also consider investing in a life insurance policy, here, you have the combination of protection and savings, and the risk factor is also taken care of.
