Merely picking the scheme that is currently performing well or picking one from the list of best ELSS funds for 2019 may not be the right decision.
With a few days left for the tax saving season of the financial year 2018-19 to end, those taxpayers who are still waiting to catch the last bus, Equity Linked Savings Scheme (ELSS) may be a good option to explore. ELSS is a variant of mutual fund (MF) scheme that allows tax benefit under Section 80C of the Income Tax Act, 1961 on investments up to Rs 1.5 lakh every financial year. Being an equity-oriented fund, ELSS invests primarily in equity markets and the funds have a lock-in period of three years.
For an investor, there are primarily two ways to invest in any MF scheme, including ELSS. One may invest in Direct Plan wherein there is no intermediary and hence no commission gets paid to anyone, unlike a Regular Plan where the distributors get a commission, no matter one invests offline or online through them. If you wish to invest in a Direct Plan, make sure you enter the word ‘Direct’ in the application form.
Check if you are KYC compliant
On the website of any fund house, one may check whether the individual investor is KYC complaint or not. Click on ‘Invest online’ and then one will be prompted to enter the PAN number. On entering the PAN number, if the system displays the KYC Compliance status as ‘Not done’, the investor cannot make the investment. However, he can pre-fill the online application form and the KYC application form, take a print-out of the same and submit it after affixing signature, photograph (on KYC form) accompanied with the cheque towards subscription, at any of the official points of acceptance.
Someone investing in MF schemes for the first time, he or she has to be KYC compliant. “For a first-time investor who wishes to invest in ELSS, the KYC requirements includes a proof of identity, proof of address, PAN card and a passport size photograph. KYC requirements remain the same for investors irrespective of the mode of investment whether it’s online or offline,” says Ajit Menon, CEO, DHFL Pramerica MF.
Completing the KYC formalities takes time and one may even have to visit and submit the documents offline. However, e-KYC is the mode by which an investor may become KYC compliant and start investing in MFs. “Aadhaar based eKYC has been discontinued from October 20, 2018 but with the help of new ‘Video KYC’, an investor can complete the entire KYC process online and invest any amount on the real-time basis,” informs Menon.
“Technology is a key enabler for financial markets, including mutual fund distribution. Video KYC will speed up erstwhile offline processes that could be time-consuming and the introduction of video KYC will help mutual fund distribution to penetrate in semi-urban and rural India”, says Jatinder Pal Singh, CMO, Mahindra Mutual Fund.
If you still face problems, the only way left is to do the in-person verification for being KYC compliant and then start investing online in any of the chosen funds. Some MF websites allow investing even without registering thus making the process simpler.
What to do
With hard-pressed for time, choosing the right ELSS will be an equally important task. Merely picking the scheme that is currently performing well or picking one from the list of best ELSS funds for 2019 may not be the right decision. “Point to point returns of a scheme should not be the sole driver for any investment decision. Portfolio quality, rolling returns and add on features should also be considered,” says Menon. The risks that are inherent to equities will exist in ELSS and the optimum result may be expected over 5-7 years in an ELSS. For better results over the long term, one may diversify across 1-3 ELSS schemes with exposure in different sectors.