Investing your hard-earned money in the right place is always a tricky decision, especially if it’s your first time. There are a lot of things to consider before making any investment decision, and even if you have good knowledge about investments, practical knowledge is always different. But worry not, there is a solution to this predicament. Mutual funds could be an excellent option for beginners who are unsure about how to invest their money. The beauty of mutual funds is that they allow you to get exposure to the markets while following the guidelines of an experienced fund manager.
Among mutual funds, ELSS (Equity Linked Saving Scheme) could be an ideal option for beginners as they offer tax benefits under Section 80C of the Income Tax Act. Learn more about ELSS funds and see why it could be your first mutual fund investment.
What are ELSS funds?
ELSS is an abbreviation for Equity-Linked Savings Scheme. Section 80C of the Income Tax Act provides tax benefits for this type of mutual fund investment in India. The majority of the corpus of ELSS funds is invested in equity and equity-related instruments. These funds have a three-year lock-in period, which means the investor cannot redeem their investment before three years have passed. ELSS funds are regarded as one of the most advantageous tax-saving investment vehicles due to their potential to generate significantly higher returns than other tax-saving instruments.
Reasons why ELSS is a good investment option for beginners
- ELSS offers tax benefits to investors under Section 80C of the Income Tax Act. Investors can claim a tax deduction of up to Rs. 1.5 lakh per year on the amount invested in ELSS funds. The lock-in period for ELSS is 3 years, which is the shortest among all tax-saving investments. ELSS is a popular investment option, as it provides the dual benefit of tax savings and wealth creation.
- ELSS funds can be an excellent option for beginners as it eliminates the need to invest directly in the market. Investing directly in the market requires a thorough understanding of the market trends and keeping a close eye on how the markets are doing. However, with ELSS funds, you don’t have to worry about market timing or keeping track of stock prices. ELSS funds are managed by professional fund managers who are responsible for investing the money collected from investors into the stock market.
Once you have chosen an ELSS fund based on your investment goals and risk tolerance, you only need to assess its performance every now and then. The fund manager will take care of all the buying and selling decisions, making the investment process hassle-free for you.
- ELSS funds are designed to promote long-term investing, and it works best when investing in equities. Equities, being a high-risk asset class, require a longer investment horizon to realize their full potential. Therefore, by investing in ELSS funds, investors can build a disciplined approach towards long-term investing in equities.
- One of the significant advantages of ELSS funds is the mandatory lock-in period of three years. This lock-in period means that investors cannot withdraw their investment before three years from the date of investment. The lock-in period ensures that investors stay invested for the long-term and do not withdraw their money during market volatility or short-term fluctuations.
ELSS funds offer a compelling investment option for beginners who are looking for a hassle-free way to invest in the equity market while enjoying tax benefits. With the professional expertise of fund managers, ELSS funds provide investors with a disciplined approach towards long-term investing in equities.