It is not advisable to invest 100% of your savings in an ELSS equity fund. Even three years before the investment date, you will not be able to redeem the units in the ELSS account. And why invest all the money in ELSS funds to save tax. You can claim tax benefits of up to 1.5 lakhs under section 80C. Other investment strategies can be listed
Creating a portfolio involves diversification and allocation based on the financial goals and risk and appetite of the investor.
To make a good portfolio, you only need 5-8 schemes. For a good starting point, we use past returns, but this is not enough. Risk management is a significant part of purchasing financial services related to the market and hence, they blend in metrics of risk.
An equity-linked savings scheme or ELSS is an equity mutual fund investment that is eligible for tax deduction under Section 80C. ELSS is more beneficial for long-term investors in terms of wealth creation than other 80C products such as PPF and NSC.
Enabled for SIP
ELSS schemes are equipped with an SIP facility, which allows you to allocate small amounts every month instead of the lump sum. It is a useful option for those who earn a monthly salary. However, keep in mind that each new installment will have a different date, on which a three-year lock-in will have to get over. It is not a concern for long-term investors, as the investment can be held for many years to come.
The deduction value of section 80C is limited to a maximum of ₹1.5 lakh, so it is necessary to choose what to use. You have other options such as provident funds for employees, premiums for life insurance, the interest cost of housing loans and deductible fees for children. If there is a difference, it should be filled with ELSS, considering the return capacity and flexibility.
ELSS has the shortest lock-in period of three years for those who prefer to use their investments. Other investment options eligible for the tax deduction have a lock-in of at least five years. It is reassuring to know that you can use the money in an emergency after three years. Equity investments, however, are ideally suited to reach financial goals with a time horizon of at least seven years or more; Do not rush to redeem just because the lock-in period of your units is over.
Long term return
Being equity-linked, ELSS funds can offer inflation-plus returns over the long term. Historically, although returns are not guaranteed, we have seen that equity portfolios have been able to deliver returns in 7-10 years that beat inflation by a fair margin. In the long term, fixed return products such as savings certificates or fixed deposits are less expensive. Instead of creating wealth, they are prepared to give more profit.
ELSS is market risk, so they take a moderate risk with them, but instead of investing in one, you should always invest your savings in one basket. Connect your investment with goals to make responsible investments and achieve your goals. There are many types of mutual funds available in the market, such as large-cap, hybrid, debt, or multi-cap. You must have one fund in each scheme.