Guide to Invest in ELSS
With the beginning of each New Year, some people want to avoid payment of the hefty amount as income tax and prefer to save their hard earned money in the March end of every year. Whereas some people prefer to lock their money for the long term, still there are some people who prefer to put their small money as a tax saving instrument for a shorter period. For these earners, ELSS is the best answer. So let’s begin and understand ELSS :
What is ELSS and how it works?
Road to Investment of ELSS:
To begin the investment journey in ELSS one should know the basic steps of this journey, which are as under:
1. Chalk-out financial targets:
The first step in the investment journey is to fix the investment target or motto. These targets can be classified as Short, Mid and Long-Term.
Short-Term Targets: Those who need money within a span of five years.
Mid-Term Targets: When money is required after five years but before the completion of 10 years.
Long-Term: When money does not require until the 10 years but after this, the requirement can arise at any time.
On the basis of the above, the amount and a lock-in period of investment can be ascertained.
2. Make an Investment Bridge :
After keeping the amount of investment aside, one should know the available options of this instrument. These options are :
Long Term Plan:
Under this plan, after the expiry of the lock-in period, an investor can re-invest their saving.
Dividend Payout :
Here the investor can enjoy the income in the form of tax-free dividend accrued within the lock-in period. This dividend has the option of reinvesting where the investor allows reinvesting his earned dividends.
With the available options, one can easily make a bridge of his investment journey. For short term and mid-term targets, the dividend payout can be considered as the most suitable option. A regular flow of income can add support to their monthly income in a very easy manner. Whereas Re-investment of Dividend can create financial security for long-time purpose without any hindrance.
3. Baby Steps or Marathon Race:
An investor has to decide whether they want to invest their money in frictions or they can put lump sum directly into ELSS.
If they do not want to take the market risk so they are free to invest in the monthly installment in SIP (Systematic Investment Plan) which ultimately lands at ELSS. Here they can invest a minimal amount of Rs. 500 at least on a regular and fixed interval. Hence this disciplined investment can start with the investor’s convenience and each SIP will be treated as a fresh investment. Thus the process of investment in ELSS is as same as in Mutual Fund Investment.
4. Considering Facts:
Before you start the ELSS journey, an investor should consider some basic facts and points like
Chronology of the scheme:
The chronological statement of the scheme is the major factor for the investment purpose. The investor has the right to know the performance of the scheme of how has been shown in the past. The answer to the scheme can give the crystal clear insight into its future to the investor. Consistent good performance of any fund in the past has the maximum bright future probability.
Investment Cost:
Before to go with any investing scheme, you should consider the investment cost very carefully. Every Investment and Fund Management company charges some cost to manage the equity and funds for the investor. That is known as an Investment cost. This cost varies with the nature of the investing instrument.
Time-Period of the Scheme:
Mostly saving and mutual funds schemes are affected by the market conditions normally. So better to opt those schemes which have a history of last 5 to 10 years on record. To maintain their existence, those schemes must have gone through various market conditions in the forms of ups and downs more often. In this manner, these are more reliable schemes to invest your hard-earned money.
Compare with others:
Always comparison is not good but this is essential when you are going to invest your money in any mutual fund scheme. Besides, know the size and structure of the scheme and to find out the liking in society is also mandatory here. If all the answers are getting in positive from larger members fo the society, that means, this scheme is an apple of an eye of many investors.
Also read – Tax Saving Investments for Senior Citizens
Final Destination:
After making a wise choice to invest in the ELSS, one can choose two ways to reach the destination. One is Regular and the other one is Direct.
Regular:
Here one has to bear the higher investment cost, which ultimately becomes right to the Fund Management company.
Direct:
The investor can invest through Fund Distributor and pay the amount to that particular person for this purpose. Here the investment cost is lower than the Regular option, so in light of this is can be considered as much favorable option to invest.
Final Thought:
- Want to develop extra earning along with tax saving then go for ELSS.
- Always select the SIP, in place of lump sum for investing in ELSS.
- Remain cautious and assess proper risk management before taking the final call.
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