Why your investments portfolio needs ELSS funds

The ELSS helps build wealth and becomes a bankable tax saving option for investors.

There are two types of investors: One, the type that wishes to create wealth, and two, the kind that wishes to save tax on income. The good news is, there are certain investment options that are suitable for both types!

If you are looking for a good mutual fund investment to balance out your portfolio this year, and which offers high gains over a relatively shorter time frame, then you must check on the best ELSS funds to invest in.

Decoding ELSS fund funds

The ELSS, or the ‘Equity Linked Savings Scheme’, is a mutual fund that offers high exposure to the equity markets. This mutual fund investment sees high growth over its maturity cycle.

Your money is invested in high grade equities for at least three years – during this time, you cannot withdraw the money or borrow against it. However, this is the shortest lock-in period amongst all mutual fund investments in India. It is one of its most attractive features, combined with its potential for high growth.

Most new investors are wary of mutual fund investments with a short maturity window, especially when they have a greater exposure to equities. However, the best ELSS funds to invest in show high capability for tiding over short term volatility in the markets, while offering good capital appreciation (between 15% and 18% in most years).

The benefits of choosing the best ELSS funds to invest in

The ELSS fund offers several benefits to all types of investors. Consider some of these:

* It saves tax: Think tax gains, think ELSS. The ELSS fund offers a tax rebate up to Rs 1,50,000 for every year under Sec 80C of the Income Tax Act, 1961. Thus, it is one of the best mutual fund investments if you have a higher risk appetite and an eye on gains over the short term. You also have the option of making a one-time investment in the ELSS instead of annual investments, and still get tax gains.

* A short lock-in helps you strategise accordingly. The fact that ELSS funds have a lock-in period of just three years can be used to your advantage. You can use it for short term gains, to realise short term financial goals. However, when you choose the best ELSS funds to invest in, you can also stay invested for a longer period for higher gains with lower volatility.

* Staying invested for longer results in higher wealth creation. Every equity investment shows high growth and lowered risk over a longer time horizon. The returns from this mutual fund investment are much higher than most other funds, generally between 15% and 18% annually. However, the longer you stay invested, the more the investment appreciates, especially in a good economy. Meanwhile, the inherent risk also evens out and your portfolio remains balanced.

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