Equity Linked Savings Schemes (ELSS) have become a popular investment option for individuals in India seeking to save taxes while also aiming for long-term capital appreciation. ELSS funds primarily invest in equities and equity-related instruments, which have the potential to generate higher returns compared to traditional tax-saving instruments like fixed deposits or Public Provident Fund (PPF) over the long run. However, one of the crucial decisions an investor needs to make is where to open an ELSS account. This article will explore the various options available, their features, advantages, and disadvantages, to help investors make an informed choice.
Banks
Traditional Banks
Many well-known banks in India offer the facility to open ELSS accounts. These banks have an extensive network of branches, which can be a significant advantage for investors who prefer face-to-face interactions. For example, State Bank of India (SBI), ICICI Bank, and HDFC Bank have dedicated wealth management or investment advisory services in their branches. An investor can walk into a branch, meet with a relationship manager or investment advisor, and get detailed information about the ELSS funds available.
The account opening process in a bank is usually straightforward. The investor needs to provide the necessary Know Your Customer (KYC) documents, which typically include identity proof (such as Aadhaar card, PAN card, etc.), address proof, and a passport-sized photograph. The bank will then guide the investor through the application process for the ELSS fund of their choice. In some cases, the bank may also offer its own in-house ELSS funds, which may come with certain perks or loyalty programs for existing bank customers.
However, there are some drawbacks. Banks may charge a fee for providing investment advisory services. Moreover, the range of ELSS funds available in a bank may be limited compared to other options. For instance, a particular bank might have tie-ups with only a few asset management companies (AMCs), restricting the investor’s choice. Additionally, the investment advice provided by bank employees may not always be entirely unbiased, as they might have incentives to promote certain funds.
Online Banking Platforms
With the growth of digital banking, most banks now offer online platforms for opening ELSS accounts. This provides convenience and flexibility to investors. They can open an account from the comfort of their homes or offices, at any time of the day. The online process usually involves filling out an application form electronically, uploading the required KYC documents, and making the investment payment through net banking or other available online payment methods.
Online banking platforms often provide tools and resources for investors to research and compare different ELSS funds. For example, they may display historical performance data, fund manager details, and expense ratios. Some banks also offer the option to set up Systematic Investment Plans (SIPs) for ELSS funds online, which helps in disciplined investing.
Nevertheless, the technical glitches or security concerns associated with online platforms can be a deterrent. There have been instances of online banking systems facing outages or security breaches. Also, while the online process may seem simple, investors who are not familiar with the technical aspects or have doubts about the investment process may find it difficult to get immediate assistance compared to in-person visits to a bank branch.
Asset Management Companies (AMCs)
Directly with AMCs
Opening an ELSS account directly with an AMC has its own set of benefits. AMCs are the entities that manage the ELSS funds, and by going directly to them, investors can access a wider range of funds under their management. For example, a large AMC like Aditya Birla Sun Life Asset Management Company or Axis Asset Management Company may have multiple ELSS funds with different investment strategies and risk profiles. Investors can choose the fund that best suits their investment goals and risk tolerance.
The cost of investing may be lower when opening an account directly with an AMC. This is because there are no intermediary commissions involved. Many AMCs offer direct plans of their funds, which have a lower expense ratio compared to regular plans. For instance, a regular plan of an ELSS fund may have an expense ratio of 2.5%, while the direct plan of the same fund might have an expense ratio of 1.5%. Over the long term, this difference in expense ratio can significantly impact the returns on investment.
However, the process of researching and choosing the right fund among the many options offered by an AMC can be overwhelming for novice investors. AMCs may not provide the same level of personalized investment advice as banks or financial advisors. Also, the investor may have to deal with the AMC’s administrative processes, which could be more complex compared to the streamlined services provided by some banks.
AMC’s Online Portals
Most AMCs have their own user-friendly online portals for opening ELSS accounts. These portals are designed to make the investment process simple and efficient. Investors can create an account on the portal, complete the KYC verification process online (which may involve video KYC in some cases), and start investing in ELSS funds. The portals usually provide detailed information about each fund, including its investment objective, portfolio holdings, and performance history.
One of the advantages of using an AMC’s online portal is the ability to track the investment in real-time. Investors can log in to the portal at any time and see the value of their ELSS holdings, the returns generated, and any changes in the fund’s portfolio. Some portals also offer additional features like setting up alerts for important events such as dividend declarations or changes in the fund’s NAV (Net Asset Value).
On the downside, the online portals of some AMCs may have limited integration with other financial services. For example, it may not be as easy to link the ELSS investment with other bank accounts or financial planning tools compared to a comprehensive online banking platform. Also, if an investor has issues with the portal or the investment, the customer support provided by the AMC may not be as prompt or accessible as that of a large bank.
Online Investment Platforms
Discount Brokers
Discount brokers like Zerodha, Upstox, and Groww have gained popularity in recent years for their low-cost trading and investment services. These platforms also allow investors to open ELSS accounts. They offer a wide range of ELSS funds from multiple AMCs, providing investors with a large pool of options to choose from. The account opening process is usually quick and can be completed online in a few minutes.
These platforms are known for their low brokerage fees and sometimes even zero commission on ELSS investments. They also provide a seamless experience for investors who want to manage their equity and ELSS investments in one place. For example, an investor can use the same platform to trade stocks and also invest in ELSS funds. The platforms often have user-friendly interfaces and mobile apps, making it convenient for investors to monitor and manage their investments on the go.
However, the investment advice provided by discount brokers may be limited. They are more focused on providing a platform for executing trades rather than in-depth financial planning or advisory services. Also, while they have security measures in place, the risk of a data breach or technical issues is always a concern, as these platforms handle a large volume of financial transactions.
Robo-Advisors
Robo-advisors are another emerging option for opening ELSS accounts. These are automated investment platforms that use algorithms to provide investment recommendations based on the investor’s risk profile, investment goals, and time horizon. Platforms like Kuvera and Scripbox offer ELSS investment options. The investor simply needs to answer a series of questions about their financial situation and goals, and the robo-advisor will suggest an appropriate ELSS fund or a portfolio of funds.
Robo-advisors are beneficial for investors who are new to the market and do not have the expertise to select funds on their own. They offer a hands-off approach to investing, with the platform taking care of the portfolio rebalancing and monitoring. The fees charged by robo-advisors are usually lower compared to traditional financial advisors.
But the downside is that the investment decisions are based on algorithms, which may not always account for unique market conditions or individual circumstances. Also, the investor may have limited control over the specific funds selected, as the robo-advisor makes the choices based on its predefined models.
Considerations for Choosing the Right Place to Open an ELSS Account
Investment Goals and Risk Tolerance
Investors need to clearly define their investment goals before choosing where to open an ELSS account. If the goal is long-term wealth creation with a higher risk appetite, an AMC or a discount broker that offers a wide range of equity-oriented ELSS funds may be suitable. On the other hand, if the investor is more risk-averse and looking for a more conservative approach, a bank or a robo-advisor that can provide a balanced portfolio of funds might be a better option.
Cost of Investment
The expense ratio, brokerage fees, and any other charges associated with the investment should be carefully considered. As mentioned earlier, direct plans of ELSS funds with AMCs usually have lower expense ratios, but investors need to weigh this against the level of service and support they receive. Discount brokers may offer low or zero brokerage fees, but other costs like account maintenance fees or charges for additional services should also be taken into account.
Level of Service and Support
Some investors may require personalized investment advice, regular portfolio reviews, and prompt customer support. In such cases, a bank with a good wealth management team or a traditional financial advisor may be preferable. However, if the investor is comfortable with self-directed investing and only needs basic support like account management and transaction execution, an online investment platform or an AMC’s online portal may suffice.
Convenience and Accessibility
The ease of account opening, the ability to access the account and manage investments online or through mobile apps, and the availability of branches or customer service points in case of need are important factors. For example, an investor who travels frequently may find the mobile app of a discount broker or a robo-advisor more convenient, while an investor in a remote area may prefer a bank with a local branch.
Conclusion
Choosing the right place to open an ELSS account is a crucial decision for investors. There are multiple options available, each with its own set of advantages and disadvantages. Banks offer a combination of in-person and online services, AMCs provide direct access to a wide range of funds, online investment platforms like discount brokers and robo-advisors offer cost-effective and convenient solutions. Investors need to consider their investment goals, risk tolerance, cost, level of service, and convenience before making a choice. By carefully evaluating these factors, investors can select the most suitable option to open their ELSS account and embark on their journey towards tax savings and long-term wealth creation. It is also advisable for investors to periodically review their investment choice and the performance of the ELSS fund to ensure that it continues to align with their financial goals and market conditions.
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