13th June 2024

Generate Wealth And Save Tax With ELSS fund

We all know that in order to create wealth one has to inculcate the discipline of savings regularly. The earlier you start the better it is. This way you have more years in hand to achieve your targeted financial goals. Goal based targeting has generally found success as investors are emotionally attached to their goals. If you wish to go on a world tour with your better half or plan a destination wedding or want to buy your dream home, you will have to start investing in profiting schemes. There are certain financial schemes that offer decent capital appreciation over the long term. However, the problem with conservative investment schemes is that offer fixed interest rates which are generally on the lower end. In a market where interest rates are constantly collapsing investors can look at other investments avenues like mutual funds.

For those who aren’t aware, mutual funds are a pool of professionally managed funds that offer active risk management. Asset management companies owning mutual funds collect money from investors sharing a common investment objective and invest this pool of funds across the Indian and foreign economy. Of the several investment schemes available, equity funds are the most sought after funds because of a variety of reasons. Equity funds carry a high risks rewards ratio and are known to offer decent capital appreciation over the long term. And if you invest in equity oriented schemes like ELSS you even get an added tax benefit.

Equity Linked Savings Schemes (ELSS), is an open ended mutual fund scheme that comes with a tax benefit. According to Section 80C of the Indian Income Tax Act, 1961 a tax paying individual can invest up to Rs. 1.5 lakhs per fiscal year in ELSS and claim tax deductions for the same. Also, since there is no upper limit, investors can invest an amount that can be higher than Rs. 1.5 lakhs. However, one cannot claim for tax deductions for investments more than Rs. 1.5 lakhs.

Can ELSS funds help with wealth creation?
As the name suggest ELSS is an equity oriented scheme which means that it aims at generating capital appreciation over the long term by predominantly investing in equity and equity related instruments. Historically, equity mutual funds have offer decent interest rates to those who remained invested for a minimum period of10 years. If you seek wealth creation through ELSS funds, it would be ideal to start a SIP in ELSS funds. Systematic Investment Plan, short for SIP, is a convenient and hassle free way to invest in mutual funds. One does not need to have surplus capital at their disposal to invest in ELSS funds via SIP. Once you decide on the monthly investment amount and complete a one time KYC mandatory procedures, every month on a fixed date the predetermined SIP amount is debited from your savings account and electronically transferred to the SIP fund. The auto debit procedure is ideal for anyone who wishes to achieve capital appreciation over the long term or seeking wealth creation. Investors can also refer to SIP calculator, a free online tool which can help them understand how much money they need to invest at regular in order to get closer to their desired goal. Power of compounding is another technique that generally works in favour of those who continue to invest in ELSS funds via SIP for the long run. The capital appreciation earned by the ELSS fund continues to get reinvested for a minimum period of 36 months. That’s because ELSS comes with a statutory lock in period of three years from the date of investment.

You can create wealth with ELSS funds, but investors are expected to consult a financial advisor before investing.