Generally,
we will do two important financial things during our working lives are managing
our money and saving tax. So, before investing, let's take a look on ELSS which
is one way to save tax and grow wealth.
What is ELSS?
ELSS stands for Equity Linked Savings Scheme. It is a category of Mutual Funds that helps you to increase your wealth and save tax u/s 80C of the Income Tax Act.
Features of ELSS scheme
- A mandatory / minimum lock-in period of 3 years to get the tax benefit u/s 80C,
- Long-term wealth creation,
- Efficient fund management,
- It helps to reduce tax liability in a financial year i.e. deduction of up to a Rs. 1,50,000 from total income u/s 80C,
- Option to Monthly SIP,
- Choice of investment depending on your need either Growth or Dividend,
- Lower lock-in period, and 100% withdrawal at the end of the period,
- Low cost entry point,
- It helps to investors as tax liabilities with capital growth.
With a minimum of 65% of your investments made volatile in equity and equity related securities market, because a minimum of 65% of the ELSS fund’s assets are invested in the stock market. This means your risk can be significant. If your risk profile is aggressive or moderate by considering your risk appetite, ELSS schemes can be a good option to investment. Long-term investors benefit the most from ELSS. Hence, consider this option if you are looking to invest for at least the next 3 years.
Don't
jump funds until you find out why your fund isn't performing well. Only when
you think the fund is underperforming despite the market doing well, then you
move to another fund. Unless you need periodic income, stick to the growth
option to increase your wealth. While it comes to returns, the first thing to
consider is your investment style. If you are more conservative than
risk-friendly, pick a scheme that matches you. Accumulating too many funds can
be challenging to manage, leading to over-diversification, and making it hard
to manage your portfolio. Ultimately, the most important thing to do before you
invest, is to make sure you compare various ELSS fund’s performances and read
the fine print before signing on the dotted line.
We are advising you to start investing when you begin working and are in your age 20's. Doing it through SIP or STP will help you maximize your returns and help you to pick the best possible options. There are several tax-saving Mutual Funds to choose if you are looking to save tax by investing in ELSS. However, if you are looking for one best Mutual Fund scheme, there is no single scheme. However, for those looking to earn high returns in a short period of time, note that the short-term market changes rapidly.
Even though investing in mutual funds is seen to give higher returns than fixed investment options, most people still look at Mutual Funds for tax benefits. Investing in mutual funds helps in reducing one’s tax liability, along with making the investment grow over the long term. ELSS is one of such mutual fund schemes. As the name suggests, under this Equity Linked Savings Scheme (ELSS), savings are invested in equity markets. ELSS is a diversified equity mutual fund, which is usually looked at by investors to save tax while making an investment in this fund. Investments under ELSS are diversified and invested across sectors or industries, unlike other fund options such as sector funds, financial services, infrastructure, etc.
As said above, with ELSS, investors have their savings locked in for a period of 3 years. If your returns are low from your investment because the market has not performed well after the lock-in has ended, you can continue with the fund without exiting. You can plan the exit as and when the market rises, and the NAV of schemes increases. Experts say individuals investing in ELSS Funds need not worried about the past or current state of the market. Not only one gets an upfront benefit in the form of tax savings, but also in the long run earn good returns if stayed invested.
New investors can invest in ELSS directly from a fund house or through online mutual fund distributor platforms. Having said that, choosing the right ELSS is equally important. Experts suggest, one should not decide on their own, especially new investors, as they are not equipped to pick their own mutual funds. Hence, it is better to take the help of a financial planner or advisor, with a proven track record of beating the markets.
Investors
should remember that investing in Mutual Funds are subject to market risk i.e.
returns are not guaranteed, and may change over time.
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