Are you looking to invest in mutual funds for long-term wealth creation? If yes, then you might have come across the term Equity Linked Saving Scheme (ELSS) funds. ELSS funds are one of the popular options when it comes to investing in mutual funds, and they offer numerous benefits to investors.
Let’s discuss the benefits of investing in ELSS funds for long-term wealth creation.
What are ELSS Funds?
ELSS funds are equity mutual funds that offer tax benefits under Section 80C of the Income Tax Act, 1961. These funds invest primarily in stocks of companies across various sectors and market capitalization. The minimum investment period for ELSS funds is three years. The lock-in period of ELSS funds makes them an ideal choice for long-term investors.
Benefits of Investing in ELSS Funds:
ELSS funds offer tax benefits to investors under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to Rs 1.5 lakh from their taxable income by investing in ELSS funds. Moreover, the long-term capital gains (LTCG) from ELSS funds are exempt from tax up to Rs 1 lakh per financial year.
ELSS funds have the potential to offer higher returns compared to other tax-saving options like Public Provident Fund (PPF) and National Savings Certificate (NSC). ELSS funds invest
in equities, which have the potential to generate higher returns in the long run. According to data from Value Research, the average returns of ELSS funds over the past five years have been around 14%.
ELSS funds invest in stocks across various sectors and market capitalization. This provides investors with a diversified portfolio that reduces the risk of concentration in one particular sector or company. Diversification helps in minimising the risk and maximising the returns.
Systematic Investment Plan (SIP):
Investors can invest in ELSS funds through Systematic Investment Plan (SIP). SIP allows investors to invest a fixed amount of money at regular intervals (usually monthly). SIP helps in averaging out the cost of investment and mitigates the risk of investing in volatile markets.
ELSS funds have a lock-in period of three years, which makes them a suitable long-term investment option. The lock-in period ensures that investors stay invested for the long-term, which is crucial for generating significant returns.
Moreover, long-term investment in ELSS funds helps in compounding the returns, leading to higher wealth creation.
ELSS funds are managed by professional fund managers who have expertise in managing equity portfolios. The fund managers perform extensive research and analysis before investing in stocks. This helps in selecting the right stocks that have the potential to generate higher returns.
Investing in ELSS funds is a wise decision for long-term wealth creation. ELSS funds offer numerous benefits to investors like tax benefits, higher returns, diversification, SIP, long-term investment, and professional management.
However, it is essential to remember that ELSS funds come with a certain degree of risk, and investors should invest only after understanding their risk appetite. It is advisable to consult a financial advisor before investing in ELSS funds.
Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.