ELSS, short for Equity-linked Savings Schemes have been in the spotlight among retail investors for quite some time now. Millions of investors worldwide invest in these tax-saving mutual funds every year to benefit from these mutual fund investments. However, there is a common misconception existing among investors relating to ELSS funds. Investors are often in the dark that just SIP or systematic investment plan is the ideal way to invest in ELSS. However, that is so not true. There are several benefits of investing in ELSS funds through lumpsum mode of investment. In this article, we will understand how a lumpsum investment in ELSS mutual funds can be a good choice for your investment portfolio.
What is ELSS?
ELSS fund is a type of mutual funds that allocate a majority of their assets in equity and equity-related instruments. Association of Mutual Funds in India (AMFI) has mandated ELSS mutual funds to allot a minimum of 80% of their assets in equities and equity-linked securities. As per the deduction under Section 80C of the Income Tax Act, 1961, HUF (Hindu Undivided Family) or individuals can claim a tax deduction of up to Rs 1.5 lac per annum. This allows investors to save up to Rs 46,800 every year by investing in tax-saving investing provided that they belong to the highest income tax slabs. ELSS mutual funds have a lock-in period of three years. As ELSS funds invest heavily in equities that have a high potential of generating inflation-beating returns, these tax saver mutual funds are known to provide dual benefits of capital appreciation and tax-saving opportunities to investors.
How lumpsum investment in ELSS tax saving mutual funds can be a good choice?
If you have the lumpsum investment at your disposal, investors are advised to invest the entire amount in one go in tax-saving investments at the start of the fiscal year. Why, you may wonder. Well, for starters, you would not need to rush around the year-end to make appropriate investments for your investment portfolio to benefit from the Section 80C deduction. Investors who wait till the last moment to invest in tax-saving investments often end up investing in investment options that are not suitable for their portfolio in hurry. Hence, if you have invested in the beginning of the financial year, you would save yourself from the stress of making end-moment investment decisions. Additionally, when you invest the entire amount in ELSS mutual funds in one-go, the chances of you earning significant yield increases due to the concept of power of compounding.
For individuals with multiple and periodic source of income flows, a lumpsum investment could prove to be the right way to invest in mutual funds. If you wish to understand the future returns on your lumpsum investment, you can use a free investment tool – lumpsum calculator which is provided by most fund houses and AMCs (asset management company). Remember that it may not be a good idea to invest in ELSS funds with the sole purpose of saving tax. Your objectives of the fund must be aligned with your financial goals, risk profile, and investment horizon. Happy investing!
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