Although one can invest in mutual funds without any prior knowledge about investing, investors should try to understand some of the fundamentals of mutual funds. This is because it will help them understand which mutual fund scheme can be used to target their specific financial goals. In recent times, mutual funds have offered better capital appreciation over a longer period of time as compared to conservative investment options like bank FDs or Public Provident Funds. A mutual fund is a pool of professionally managed funds that invest in a diversified portfolio of securities to achieve a common investment objective. What an Asset Management Company (AMC) does that owns a mutual fund is that it collects money from investors whose investment objective aligns with the plan, invests the raised capital across asset classes and money market instruments.

Among the many mutual fund schemes,
ELSS It is the only equity mutual fund scheme that comes with tax benefits. Equity mutual funds aim to generate capital growth over the long term by investing in equity and equity-related instruments of companies across the market capitalization. However, ELSS scheme with dual benefit for savings as well as relief for taxation. Under Section 80C of the Indian Income Tax Act, 1961 a person can invest up to Rs. 1,50,000 per financial year and claim for tax deduction. Also, there is a lock-in period of three years, which is the lowest as compared to other tax saving instruments covered under section 80C.

Are all equity funds ELSS schemes?

The answer to this question is no’. ELSS is the same
Equity Mutual Fund Scheme whose investments can be claimed as investment proof for tax benefits. However, long-term capital gains from equity mutual funds are less than Rs. 1 lakh is exempted from tax deduction. Also, the rate of 15 per cent is applicable on all short term capital gains for other equity funds.

Like all equity mutual funds, ELSS comes with multiple investment options. Depending on your investment objective, risk appetite and income flow, you can either start a monthly SIP or you can invest in lump sum at the beginning of the investment cycle. A systematic investment plan can be an ideal approach for anyone who wants to inculcate the discipline of regular investing. Through SIP, the investor can continue to invest in any mutual fund scheme of his choice till his investment objective is fulfilled.

A systematic investment plan is a tool to invest small fixed amounts at regular intervals in ELSS funds. Since you will be investing for a minimum tenure of 36 months, with SIP you can be able to save tax and build wealth gradually. Also, investors are free to check out the SIP calculator, which is a free online tool for all and can estimate the returns earned at the end of their investment journey. SIPs are flexible as you can increase or decrease your monthly investment amount or even skip the one-month SIP. If the ELSS fund you have invested in is not performing well, you can also stop the monthly SIP and switch to a better performing plan.

As of now, ELSS is the only mutual fund scheme that comes with tax benefits. However, since it is an equity oriented scheme, one’s investment portfolio
ELSS The fund is constantly exposed to the volatile nature of the market. Investors are expected to determine their risk appetite before investing in this tax saver fund.