India has a fast-growing economy and that puts the Indian financial market in a peculiar position. It allows the investors to enjoy exponential growth opportunities while providing financial aid to those needy at affordable rates. Against this backdrop, mutual funds have managed to attract a vast number of investors; mainly because of their systematic investment plan scheme where a small amount of Rs.500 is sufficient to begin the investing journey.
The mutual fund parlance has several funds that you can opt for to invest in as per your goals and risk appetite. However, among all of them, the equity-linked savings scheme (ELSS) makes a strong case for itself to be the first fund that you should opt for in your mutual fund investment journey. So, why should ELSS be your maiden fund? Let’s find out.
An ideal way to kickstart equity investment
While equities have the potential to generate inflation-beating returns in the long run, often investors give it the cold shoulder because of its inherent volatility. However, ELSS is an excellent way to start investing in equities as your money is invested across sectors and companies, offering diversification.
Thus, it brings down the quantum of risk and, in the long haul, helps you accumulate a sizeable corpus for crucial life goals like the education of your children, their marriage, and even your retirement.
It helps lower your tax outgo
If you are in the old tax reign, investment in ELSS helps you lower your tax liability. This is because investment in ELSS certifies for tax exemption under section 80C of the Income Tax Act, 1961. So, you can claim the amount invested in ELSS as an exemption while filing your IT returns.
This comes in handy if you are in the higher tax bracket. Thus, with ELSS, you can achieve twin goals. While you can build a sizeable corpus for vital life goals, at the same time, you can bring down your tax liability.
Can start an investment with a small amount
This is another reason for ELSS to be your first mutual fund. You can start an investment with a small amount from as little as Rs. 500 per month. So, if you have just started earning, you can start with this amount and gradually increase it with a rise in income.
With a systematic investment plan (SIP), you can invest the amount of your choice regularly in your chosen fund at a pre-defined interval and even top-it with a rise in income. Note that with a top-up, you can accumulate a bigger corpus at the end of the investment term.
Inculcate discipline in your investments
To accomplish your financial goals, you need to be disciplined with your investments. ELSS helps you achieve it as your investments are locked in for three years. Be it through a systematic investment plan (SIP) or lump sum; you can’t withdraw your money before three years from the date of investment. This gradually brings discipline into investments.
Also, the three-year lock-in period gives more time to your money to grow and, in the long haul, brings compounding into play that has a multiplier effect on wealth.
As evident, making ELSS your first mutual fund brings with it a host of advantages like helping you to build your corpus fund and help you plan your taxes. However, before investing, go through the fund fundamentals and check out its long-term performance, vis-à-vis its peers and benchmark index. It is advised to opt for a fund with a consistent long-term track record with sound fundamentals. Happy investing!
You can check out the list of top performing ELSS Funds here.