Saving money is important. It is simple and will be beneficial for you in the future. Keeping aside cash and investing in funds will save you in case of a financial emergency. You need to plan accordingly and save money. One such way is the ELSS (Equity linked savings scheme). In this article, you will know the 3 reasons why it would be beneficial for you.
What is ELSS?
- It is a type of mutual fund scheme that invests in the stock market or equity.
- It is offered by mutual funds in India.
- It is close-ended and has a lock-in period of three years.
- It is a tax saving ELSS under section 80C of Income Tax Act 1961.
- ELSS has better liquidity compared to NSC and Public Provident Fund.
Reasons you should invest in ELSS mutual funds
- If you are a salaried employee, a certain amount of your salary goes into the Employee Provident Fund (EPF), and that amount is a fixed amount product. If you decide to balance out risk and get a return on your investment portfolio, ELSS is the best option for you. Unit Linked Insurance Plans (ULIPs) and the National Pension Scheme (NPS) gives tax benefit, but they have a higher lock-in period and lesser potential of returns.
- You should opt for ELSS as it has the shortest lock-in period of only three years.
- ELSS is an ideal choice for a new investor. If you are a new investor, you will get an idea of equity investing and mutual funds. The best way to start is by investing in monthly SIPs. When the market is adverse, SIP in an ELSS fund helps you accumulate more units and get good returns when the market is favorable.
What should you consider before investing in ELSS funds?
- You should check the10 year’s performance of fund houses and then choose the fund.
- It is recommended to choose a competent and experienced fund manager for your funds as he/she will be the key person in the management of your funds.
- You should analyse the performance of a fund by considering several parameters like Standard Deviation, Sharpe Ratio, Alpha, and Beta. You should choose funds with a higher Sharpe ratio.
Advantages of ELSS
- It has the shortest lock-in period of 3 years, which offers more liquidity in the medium term.
- In a medium to long term-investment, ELSS has the potential to generate higher wealth.
- For long-term capital gains, the tax is free up to a limit of Rs1 lakh. If you gain over 1 lakh, the tax rate is 10%.
- Through a monthly sip, it is easy to invest for you in ELSS funds.
The article gives you the information on why you should invest in ELSS funds. It also gives you 3 reasons that make ELSS beneficial for you. With its advantages, it will be helpful for you to invest money in ELSS.