Resolving Misconceptions about Tax Saving Mutual Funds (ELSS)
Equity Linked Savings Schemes funds are one of the best tax savings schemes available without any question of doubt. Let’s give a brief look at how ELSS funds have steadily outperformed other tax-saving investment options. These equity-linked schemes offer tax benefits under 80C of the income tax act. These schemes also give investors the higher ROI with the option of short lock-in periods, all the while compiling a long-term corpus to meet financial goals.
With the growing interest over the years, ELSS has become an interesting investment avenue. As the coin has two sides, unfortunately there are various myths attached to the scheme. ELSS is looked upon with a certain degree of apprehension due to some of the myths which are demystified in the column below.
MYTH 1: Can invest only ₹1.5 Lakhs
This is of the biggest myth about ELSS funds. In reality, one can park as much funds as one likes with availing ₹1.5 Lakhs of tax benefits under 80 C of the Income Tax Act.
MYTH 2: 3-year Lock-in Period
The fact says although one can’t withdraw parked money before the lock-in period, & can remain invested for as long as one wants. After the fulfillment of the 3-year lock-in period, one don’t necessarily need to withdraw funds.
MYTH 3: Short Term Investment
The 3-year lock-in period doesn’t make ELSS a short-term investment option. ELSS can be judicious to remain invested for 5+ years to enjoy the power of compounding.
MYTH 4: ELSS are Risky Schemes
Investing in equity linked mutual funds is highly risky and should be avoided. The fact states, due to its equity nature, indigenous risks are aligned with. Seeing on the brighter side, the risks doesn’t matter considering the returns in the long-run.
MYTH 5: Demat Account is Necessary
One does not need a Demat account to invest in ELSS. If you have a Demat account, you can very well use it to make investments. However, this can also be done through VSRK.
MYTH 6: Low NAV Funds are Cheaper
The reality check says, low or high NAV has nothing to do with the scheme’s performance. If 3 funds with different NAVs gives 18% returns, anyhow, the portfolio will go up by 18%.
MYTH 7: Infused Dividend adds to Gains
In reality, a NAV falls as the dividend is distributed. A consistently outperforming fund may not declare a dividend and may handsomely reward in the long run with its performance.
MYTH 8: Surmounts are “Safe Avenues”
Investors buy last year’s outshining funds, may be the fund may subsequently cease to exist now. VSRK suggests to study the performances over the last 3 – 5 years before investing.
MYTH 9: ELSS is too Complex
ELSS is simple mutual fund scheme which has a 3-year lock-in period with an amount as little as 500INR, which makes it easy and affordable for anyone.
ELSS is not any different. As with everything investments, associates inherent risks which require graceful pre-planning. Never fall for the myths discussed above, may one miss a great investment promising a plentiful return.