Why ELSS should be your first Mutual Fund?

All of us do some kind of investments – be it savings, fixed deposit or any other schemes. These are all traditional ways of saving your money that offer meagre returns, but if you really want to experience better returns, it’s time to start your journey into mutual fund investment . Many people are exploring various investment options to derive better returns. Often, those who are new to MF investment prefer to start with the Equity Linked Saving Scheme (ELSS).If you’re a first-time investor, here’s why you ELSS should be your first mutual fund:

When you invest in ELSS, one of the biggest advantages is taxes benefit. The mutual fund scheme allows you to save up to Rs.1.5 lakh in a year, under Section 80C of the IT Act, 1961. ELSS is the only tax-saving investment option in mutual fund category.

You can invest in ELSS a fixed amount monthly through Systematic Investment Plan (SIP). Choosing monthly SIPs will help you to start ELSS by just investing Rs.500. This can be beneficial for first-time investors who cannot afford to invest lumpsum amount all at once.In fact, the option of SIP promotes the habit of regular savings. You can continue investing every month even after the lock-in period ends as equity investment can help you earn great returns and build an adequate corpus for your long-term goals.

ELSS mutual funds are an equity diversified mutual fund scheme that consists of multi-cap funds. This means you can invest in all sectors and companies. As an investor, you have the flexibility to change the portfolio, depending on the market conditions.Diversification nature of the equity scheme helps to spread the risk, so as you can generate better returns

As opposed to the other tax-saving options available under Section 80C such as the fixed deposits, recurring deposit, pension schemes, ELSS provides better returns at the rate of 12% per annum.
Moreover, the traditional tax benefit plan falls short in beating inflation. ELSS helps you to beat inflation with ease due to the potential of equities. This helps you to map your investment goals accordingly.

Since ELSS consists of a large proportion of equity funds, they are considered as risky. The scheme comes with a lock-period of 3 years, which evens out market volatility in the interim period.An ELSS fund majorly comprising of large-cap stocks is considered stable as this ensures there is no volatility in returns even when the market fluctuates. Allocating your funds in mid-cap and large-cap stocks are deemed risky, yet they tend to generate higher returns.

It is best to invest in ELSS through a professional fund manager/ asset management company (AMC), who are well-informed about the market sentiments. For the first-time investor, one needs guidance and support of fund manager so as you can rest assured that your money is in safe hands. Moreover, you do not have to worry about being inexperienced in mutual fund investment .Also, the expense ratio, which of managing the equity scheme, is cost-effective. The ratio is a measure of the per unit of cost of managing a fund. A lower expense ratio translates into high profitability and vice versa.These are some of the reasons why you should opt ELSS as your first mutual fund investment option. If you want to shift your focus to mutual funds, then make sure you begin with the Equity Linked Savings Scheme.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.