Prasad Nair
Mumbai, March 16
ELSS (equity-linked-savings-schemes) are a good means to save tax and create a pool of wealth in the long run. Many individuals as well as business entities that come in the tax bracket avail ELSS to save tax and this in turn help them accumulate wealth that could be used in future. So what is ELSS?
ELSS funds doled out by various mutual fund companies are equity linked funds that invest a large portion of their corpus into equity or equity related instruments. As they come under section 80-C of the Income Tax Act offering tax benefits, they are popular as tax savings schemes.
Often ELSS funds invest across a range of companies in small caps to large caps across various sectors resulting in creating an element of diversification in one’s investment portfolio. Tax saving ELSS schemes has a mandatory lock-in period of three years, which means that your invested amount can only be withdrawn after the period gets over.
Well everything comes with a risk and mutual fund investments are also not immune to this. Although prone to market volatility, mutual funds often have the potential to generate good returns in the long-term. Investors can mitigate the volatility risk factor through systematic investment plans (SIP) mode and more often than not this is a preferred way of investing when you don’t want to risk losing a lumpsum amount.
Investing in ELSS through SIP mode is a good gateway to create wealth but the key is to select the right funds. Investors need to be cautious while investing and a good way to do this is by examining the scheme’s performance over 3-5 years and if the consistency in returns is good then it is worth trying out.
One needs to ensure that there is a proper diversification across marketcaps and industries while investing. Eventually, the investor has to do some R&D on his own or consult experts in the field before zeroing in on the right ELSS for investing, something which can meet one’s financial goals, and once that is achieved, you will realize that ELSS is a great option in tax saving and generating wealth.
