Investing in mutual funds has become a popular way to create wealth and achieve long-term financial goals. One type of mutual fund that has gained popularity amongst investors is the Equity-Linked Saving Scheme (ELSS) mutual fund. An ELSS mutual fund is a type of diversified equity mutual fund with a lock-in period of 3 years and tax benefits. ELSS mutual funds have proven to be an excellent investment option for wealth creation. In this article, we will discuss how ELSS mutual funds can help you grow your wealth.
- Tax Benefits: One of the biggest advantages of investing in an mutual fund is the tax benefits. Under section 80C of the Income Tax Act, investors can avail a tax deduction of up to Rs 1.5 lakh by investing in ELSS mutual funds. This means that if you invest Rs 1.5 lakh in ELSS mutual funds, you can save up to Rs 46,800 in taxes in a fiscal year. Additionally, the gains from ELSS mutual funds are tax-free.
- High Returns: ELSS mutual funds invest in equity markets, which have the potential to offer high returns over the long term. The historical returns offered by ELSS mutual funds have been higher when compared to other tax-saving options like Public Provident Fund (PPF), National Savings Certificate (NSC), and Fixed Deposits (FDs). For example, the SBI Small Cap Fund has offered a return of 22.99% over the last 5 years, whereas PPF has offered a return of 7.1% over the same period.
- Diversification: ELSS mutual funds invest in a diversified portfolio of stocks, which helps investors to reduce the risk of losing money. A diversified portfolio lowers the risk of being exposed to a single sector or company. The fund manager of the ELSS mutual fund regularly monitors the portfolio to ensure that the investors’ money is invested in the best-performing stocks.
- Long-Term Investment Horizon: ELSS mutual funds have a lock-in period of 3 years, which means that investors have to stay invested for at least three years. This lock-in period encourages investors to stay invested for the long term, which helps in wealth creation. Furthermore, investing in ELSS mutual funds through the Systematic Investment Plan (SIP) helps investors to continue investing regularly, irrespective of market volatility.
In conclusion, ELSS mutual funds can help investors create wealth through tax benefits, high returns, diversification, and a long-term investment horizon. The SBI Small Cap Fund is an example of an ELSS mutual fund that has consistently offered high returns to investors, making it an attractive option for wealth creation. Before investing in an ELSS mutual fund, it is recommended to do your own research, analyze the fund’s past performance, and consult with a financial advisor.
Summary:
Wealth creation is made easy with Equity-Linked Saving Scheme (ELSS) mutual funds. These mutual funds provide tax benefits, high returns, diversification, and require a long-term investment horizon. SBI Small Cap Fund is an example of an ELSS mutual fund that offers high returns and can be a great option for wealth creation. To invest in ELSS mutual funds, research their past performance and consult with a financial advisor.