Finance

Factors To Consider Before Making an ELSS Investment

ELSS or Equity Linked Savings Scheme has risen and established itself as one of the best types of Mutual Funds Investment.

The reasons behind this rise and the growing popularity   are- A. The fact that they help save taxes and B. The fact that they are equity-based and hence have the potential to provide high returns.

Both the reasons together have made ELSS funds- a mutual fund investment mode that is trusted upon to help save and get higher return in the coming future by a number of investors.

However, when you look into the ELSS mode of investment at a bird eye view, you will notice a picture where the rate of investment is still a lot lower as compared to any other form of investment that falls under Section 80c (a section of the Income Tax Act, 1961 that allows for up to Rs.1,50,000 to be exempted from taxation).).

The primary reason behind this difference which emerges when the benefits of ELSS fund investments are clearly known is either the lack of understanding that the investors have about the medium or a loss that they must have faced – the latter being the ripple effect of the former.

The aim of this article is to help you understand the factors that you should consider when making an investment in ELSS funds, just so you never have to face a similar fate as many who stopped trying and ultimately forego of the profit and savings that ELSS could generate.

It is very important for you to understand here that the factors that impact ELSS are also the ones that will have a major say on how much you can avail in returns after investing in them.

Without further delay, let us get on with it.

Factors that You should consider Before Making an ELSS Investment

1. Treat ELSS as a Long-term investment

Although, as compared to all the other mode of tax saving investment models, ELSS is the one that comes with the lowest lock-in period, it should be, in no way, termed as a short term mode of investment.

Ultimately,ELSS funds are equity-based – the type known to offer benefits in the long run. So, if you are getting into it with the mindset to make money within one year and also save tax, all you will face is disappointment.

So, invest in ELSS for the long haul.

2. Time frame will Cut Down the Risks

It is not uncommon for new investors to feel that because ELSS funds mostly deal in stocks, they are a lot more volatile than any other form of tax saving investment mode and they are not wrong.

When you invest with short term mindset, you will face greater market up and downs and lowered probability of gaining high returns. But, if you invest in ELSS through the mode of SIPs – by giving an amount as low as Rs. 500 in your preferred ELSS fund, you will not have to face the market volatility as with such low amount you will be able to stay invest for the long haul, thus overcoming all the market fluctuation risks.

3. ELSS is the Ideal Mode for First-Timers

There are several investment gurus who believe that ELSS with its fixed lock-in period of 3 years is the best mode of Mutual Fund investment for people who are just starting with the fluctuating world.

The lock-in period does not just give new investors the discipline that is needed to remain invested in the Mutual Fund market but also helps them with enough instances to clear their idea of how market ups and downs impact the invested amount.

In addition to all of this, the general higher returns than the invested amount scenario is deemed ideal for those who have the dedication to remain invested.

4. ELSS Returns are High But it is Unwise to Get ahead of yourself

 Although the returns that one can expect at the back of ELSS returns are fairly high as compared to any other form of Mutual Fund investment, mostly because they deal with stocks, it is not fair to assume that you will be able to get back 50-60% returns on the invested capital.

So, be realistic when you set your ELSS returns goal. Think of 10-12% returns and you will never be disappointed.

Now that you know the factors that are responsible for your ELSS returns, keep them into consideration and contact our team for opening your Mutual Fund account.

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