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Can I start an SIP of Rs 2,000 in ELSS funds to claim 80C benefit?

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Last Updated: Jun 04, 2020, 11.39 AM IST

Summary If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

I am new to mutual funds. I want a clarification on investing in ELSS. I want to know whether I can start an SIP in ELSS for Rs 2,000 for one year? Will I get tax benefit of 80C on the investment?
-Ritesh Mathur

You can start a monthly SIP of Rs 2,000 in an Equity Linked Saving Fund or ELSS. In fact, you can start an SIP with as little as Rs 5,000 in many equity mutual fund schemes.

As you know, Section 80C of the income tax allows tax deductions of up to Rs 1.5 lakh on investments in certain instruments like ELSS mutual funds in a financial year. So, if you want to claim a fixed amount, say, Rs 50,000, in this financial year, you should make sure that you invest the money between April and March. That means, if you are planning to start an SIP in June, you can claim deductions on investments made before March. Investments made after March would qualify for tax deductions in the next financial year.

Due to the pandemic, the government has extended the last date for tax-saving investments investments for the financial year 2019-20 to June 30, 2020 from March 31, 2020. So, if you haven’t finished your tax-saving investments for the last financial year, you still have the time to complete your investments.

You should also remember one more thing while investing through SIPs in a tax-saving mutual fund scheme. Since ELSS funds come with a mandatory lock-in period of three years, you will be able to withdraw the money only after the SIP instalment completes three years. Remember, this is applicable to every SIP instalment. This means your SIP instalments will get out of the lock-in period at different points of time. In short, you can withdraw the entire money in a lumpsum only after the last SIP instalment completes three years.

Lastly, though ELSS mutual funds come with a lock-in period of three years, invest in them only if you have an investment horizon of five to seven years. Equity mutual funds, including ELSSs, are risky and volatile in the short term. That is why you should always invest in them with a long investment horizon.
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(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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