Guide: How to invest in an ELSS
With barely a week left in the Financial Year, there will be many who will be engaged in a last-minute scramble to invest into tax saving investments. One some instrument of choice is a ‘tax saving mutual fund’, also known as an ELSS. If you’re one of them, here a simple ready reckoner on how to go about with investing in an ELSS.
First, Know The Basics
Many uninformed investors rush into ELSS Mutual Funds without understanding them properly, only to regret their decision later. What’s important to know is that ELSS Funds, being equity linked (as the name suggests) are high risk in nature. Most ELSS Fund NAV’s have fallen by 6%-7% from the start of this year alone; and in the bust of 2008, many ELSS Funds lost 50% or more in value! Having said that, ELSS funds also have the highest potential to deliver long term returns, as can be seen from the impressive 5-year CAGR of 20% or more that most top performing tax saving mutual funds boast of these days. ELSS Funds are locked in for 3 years from the date of purchase.
First-time Investors Need to be KYC Compliant
If you’re a first-time investor, you need to be KYC compliant before you make you can invest in an ELSS, or else the asset management company will reject your application. Fortunately, the Aadhar-based e-KYC process has made the process a whole lot simpler. Remember that furnishing your Aadhar details is now mandatory while making any fresh Mutual Fund investment – and that includes ELSS Funds too! A PAN card is mandatory in case the quantum of your ELSS investment exceeds Rs. 50,000 or more.
Additional Purchases in Your Existing Folio are Possible
If you’re already an existing Mutual Fund investor and would like to avoid the hassle of filling out a new form, you may make an additional purchase in an ELSS that’s from the same asset management company as your existing folio. All you need to do is to provide a cheque and sign a simple ‘additional purchase request’ form. Do make sure that the ELSS you’re investing into has a solid track-record of outperformance, though! Don’t sacrifice investment performance for the sake of convenience
A final word: don’t try to time it
Remember that timing the market is impossible, and so don’t sit on the sidelines idly, waiting for the ‘perfect time’ to invest in an ELSS. In fact, the best thing you could do would be to start an SIP in an ELSS in April ’18 itself, thereby putting your tax savings for the next fiscal on autopilot!