6 compelling reasons why you must start investing in ELSS funds for your tax planning
When it comes to tax planning, are you stuck with the old & so-called “safe” investment avenues like NSC, LIC etc.?
These “safe” investments are not the best in the long term because they don’t protect you from the biggest enemy of your wealth creation journey that is inflation.
At Finbingo, we believe that tax planning should not only help you save taxes but also grow your wealth.
Today, let’s discuss a tax-saving avenue that can grow your wealth in the long term, & also save you tax. And why you should choose it.
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Reason # 1: ELSS helps you to create wealth:
Equity has given the highest returns over the long term across all asset classes. Hence, if you really want to become rich & secure your retirement, you must have some equity in your investment portfolio.
ELSS funds are mutual fund schemes that contain a minimum of 65% exposure to equity shares at all times. Due to this high allocation, you get to participate in the long-term growth of these companies & save tax at the same time.
Please find below some guidelines on investing in ELSS for your financial goals:
Invest in ELSS funds only for your medium to long term financial goals (5 years & more).
Do some research on finding a good performing scheme from the various schemes available in the market.
To help average out the investment cost, spread your investment throughout the year (i.e. through SIP mode) compared to one lump-sum.
Reason # 2: Helps balance out asset allocation for salaried employees
If you are a salaried employee, you already may have a sizeable allocation to the Employee’s Provident Fund (EPF), a fixed-income investment.
Investing in ELSS funds not only allows you to set right this asset allocation mismatch & brings balance into your allocation & at the same time helps you save tax.
As regards to other tax-saving avenues that invest in equity, note the following:
ULIP: Compares very poorly to ELSS on transparency as well as costs – hence avoidable.
NPS: Good product, but given the long lock-in period, it is suited for retirement only & not for other financial goals.
Reason # 3: Helps investors “test the waters”
As we discussed above, equity is a must if you want to create long term wealth. And to reap the real benefits of equity, you need to start early in your career.
ELSS Is a great way you as a young earner can test the waters of equity as an asset class for the following reasons:
You can start by investing as low as INR 500 – best for investors who have just started out in their career
You can automate your investment by setting up a mandate of a small amount every month, which helps in regular savings
Reason # 4: ELSS is a transparent & straightforward product:
The beauty of ELSS is its simplicity and transparency.
You can quickly obtain the details of scheme performance, portfolio allocation, cost structure, lock-in etc. on the mutual fund’s website. This can help you carry out a comparative analysis of the schemes.
You can also note that mutual funds are very tightly regulated by the government. This ensures that as an investor, your interests are protected.
Reason # 5: ELSS is a flexible investment
A lower lock-in period of 3 years makes ELSS more flexible as compared to some other tax-saving avenues like NPS (till you reach 60 years of age), PPF (15 years), NSC (6 years), ULIP (5 years).
While you must stay invested in equity for long term to reduce the risk & reap good returns, a lower lock-in period can help you in the following ways:
You get the freedom to change the scheme if you are not satisfied with the investment performance of the existing scheme
You have an unplanned need of funds
You may want to redeem & re-invest, to get a new 80C exemption for that particular year.
Reason # 6: Investing in ELSS in online & hassle-free
Many people dread the investment paperwork or taking leave from work to meet some pesky sales agent. ELSS is a breath of fresh air here!
You can invest in ELSS entirely online in a hassle-free way – even from your computer or mobile phone on which you are reading this article right now!
If you want to redeem funds, you can do so from the comfort of your home & receive the funds directly in your bank account. You can also set up a systematic investment (SIP) & also make a systematic withdrawal (SWP) at the click of the button.
However, always remember, Mutual Funds are subject to market risk and is suited for investors with investment period greater than 5 years and high risk taking ability . In case you have any queries, you can speak to the Finbingo Advisors on 9321908752.
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