6 Benefits of Investing in ELSS Mutual Funds

It is common for investors to lose funds when investing. While market fluctuations are one reason, another prominent cause is taxation. It significantly lowers investment earnings. It often comes in the way of efficient wealth building. To avoid this, most investors opt for an Equity-Linked Saving Scheme. An ELSS Fund is a type of investment scheme associated with Equities. It invests most of the funds in Equity-related products.

It is ideal for those who want to dodge paying taxes. Besides tax benefits, ELSS has a bunch of other advantages. Here are others for your understanding:

  1. Helps sustain financial discipline

The minimum amount in such funds is as low as Rs. 500. Hence, it is accessible to those who have just started earning or do not have a large sum to invest. It empowers such investors to put their money to work despite monetary limitations. Given this liberty, it enables them to sustain financial discipline.

  1. Offers adequate lock-in duration

In an ELSS, your funds are secured for at least three years. You can even continue investing beyond this duration. For example, you invest Rs. 500 and get 50 units on 31st March 2021. In this case, your lock-in period will end on 30th March 2024. But can extend it upon request. The process depends entirely on your Mutual Fund provider.

Also, your investments are exempted from taxes during this period. That way, you can optimize your invested funds without any hindrance.

  1. Provides long-term value

The lock-in period in ELSS Mutual Funds is extendable beyond three years. Investors can continue their investment growth for a long time. They can also redeem it if need be. Since this scheme offers tax exemption, you reap higher returns.

  1. Delivers good returns

This fund generates relatively good returns. It increases your investment significantly in a medium period. As it does not permit partial withdrawals, you sustain the growth of your investment efficiently.

  1. Beginner-friendly

A Mutual Fund Investment might sound intimidating to new investors. Their insufficient market knowledge can make them unsure of opting for complex schemes. An ELSS Fund serves as a viable option for such investors. It gives them the freedom to invest without needing to bear taxes. Its simplistic approach adds to the convenience.

  1. Offers Options

An ELSS Fund has three types. These include:

Growth: Under the growth scheme, the investor may receive gains only during redemptions.

Dividend: In the dividend scheme, the investor must receive timely dividends.

Dividend reinvestment: In the dividend reinvestment scheme, investors could reinvest dividends in it again.

Thanks to such options, you could choose amongst these types based on your investment objectives and plan. For further guidance, however, it is best to consult a financial advisor or an investment expert.

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