Equity linked saving scheme (ELSS) is ideal for the investors who wish to save tax. ELSS is precisely, a kind of mutual fund scheme that invests majority of its corpus in equity or equity related products. Every personal finance and investment expert will tell you that the best way of investing in an equity linked savings scheme (ELSS) is through systematic investment plans (SIP). SIPs are touted to be the wealth-generating way of investing for the long-term. Furthermore, with an ECS mandate, you can automate your savings plan through SIPs. These conveniences make ELSS funds a great investment option for exposure to equity.
Apart from the fact that they help beat anxiety, the four major benefits of SIPs are as follows:
Investing in equity mutual funds can be tricky because the stock markets are volatile. Investors tend to shy away from equity because of the ups and downs they witness. But in doing so, they give up on the opportunity to generate high returns over the long-term. Equity has proven to be the best-performing asset class over periods of 10-15 years, which is when the magic of compounding interest starts to show.
Small amounts and big gains
SIPs allow investors to invest small amounts every month. Most ELSS funds accept investments of Rs 500 to Rs 1,000 a month. The amounts that you invest in ELSS funds will not only lead to tax saving, but a regular investment will grow to become a large corpus after a few years.
Rupee cost averaging
Unlike a lump sum investment where you invest at only one level of the market, SIPs allow you to invest at different levels. The equity markets will invariably be at different levels on the designated date of your monthly SIP, allowing you to average out your cost of acquisition. When the markets will be low, you will be able to get more units.
Through an ELSS fund, you get the services of a professional fund manager at a very nominal fee. You don’t need to pick shares or sectors to invest in, the fund company’s research and analysis team does that work for you. You don’t need to open a demat account or go to a stock broker to get exposure to the equity markets, an ELSS fund helps you do that easily.