Things to Know Before You Invest in an ELSS Fund

There are numerous types of funds introduced in the market. This might make it difficult for the investor to take a pick. Knowledge about the same can help understand its features and make a well-informed decision. Here is all you need to know about ELSS funds before investing in the same.

What are ELSS funds?

Equity Linked Savings Scheme or an ELSS mutual fund is an investment product that helps you save tax under section 80 c and grow your wealth. It is an open-ended equity mutual fund, which is managed by professionals on your behalf.

Why should you invest?

There are many reasons why ELSS funds are a preferred choice of investment. It helps in the creation of wealth while saving tax under section 80 c.

Moreover, the schemes have given higher returns than any other tax-saving investment scheme. It also has a short lock-in period of three years compared with other tax saving investments.

Lastly, the returns generated in the form of a dividend is tax-free for the investor.

Comparing ELSS and traditional investment instruments

Investment option in ELSS

There is a flexible investment option in ELSS fund, which allows you to invest in small but regular instalments. You can choose to set up a Systematic Investment Plan (SIP) and invest a particular amount each month.

You have the flexibility to increase or decrease the SIP amount in the future. This feature makes is a convenient investment option compared with other tax saving investments.

Redeeming ELSS

Before you decide to redeem the fund, you need to understand the circumstances of redemption. ELSS funds have a lock-in period of 3 years. So incase of ELSS funds only units which have completed the lock-in period of 3 years are available for redemption.

You can continue to hold your ELSS fund even after the completion of the three-year lock-in period.

As explained above, the returns of ELSS fund are higher as compared to the returns earned in the case of an FD or PPF or NSC.

Who should invest in an ELSS fund?

ELSS fund is for investors who want to grow their wealth and save tax simultaneously. It carries a higher risk as compared to other investment products but it also generates high returns.

In addition, if you need high liquidity in a very short period, this fund is not for you because it has a minimum lock-in period of three years. If you are looking for an alternative investment product in place of PPF or FD, this is the best investment option.

Do not invest in the fund solely for saving taxes. Choose the right fund and invest with an aim to grow your money over a long duration.

What are the best ELSS funds?

We have listed down few of the best ELSS funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• ICICI Prudential Long Term Equity Fund Growth
• Axis Long Term Equity Fund Growth
• Aditya Birla Sun Life Tax Relief 96 Fund Growth
• HDFC Tax Saver Growth
• Franklin India Taxshield Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Not Having Financial Goals:

Not having a financial goal in mind is probably the biggest mistake an investor makes while investing. If you are not clear about the outcome you want, you will end up taking a decision that will do more harm. Investing without creating a goal is similar to travelling without having a destination in mind.

Chasing High Returns:

Best way first-time investors start their investment planning is by sorting the top mutual fund schemes in the order of higher returns. You have to do your research to understand how different mutual funds schemes work and not just select a scheme based on their past performance.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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FundsInn is AMFI certified company that offers various services including Financial planning and Assets management. We recommend a personalised investment portfolio keeping your financial goals and investments in mind.

Our financial advisors understand your current financial status and suggest a financial plan that suits your needs. You can initiate different types of transactions including Lump sum investment, SIPs (Systematic Investment Plans), in various schemes available on our portal.

If you are looking for guidance then get in touch with our financial advisor and get started today.