When you are young, you envision your life and career going in a specific direction. There are specific goals and ambitions that you wish to achieve before a certain age. When you start earning, a significant portion of it goes, understandably into covering expenses. You must have felt the need to invest and save your money at some point. Planning your finances at an early stage will help in fulfilling various such aspirations over time.
There is a multitude of financial instruments available to help you save money. Since every individual has different financial requirements, it might get confusing to understand the best investment option suited to your needs. ELSS investment is one such instrument that offers several benefits to you. Equity Linked Saving Scheme (ELSS) is part of a mutual fund investment that is ideal for a young investor to build their wealth.
Here are a few reasons to choose an ELSS investment over other options:
- Tax saving: If you have recently become a taxpayer, you are likely to feel the financial burden of it more noticeably. It might be challenging to balance short-term savings with expenses while fulfilling your duties as a taxpayer. Fortunately, some investments and expenditures are eligible for a tax deduction under the Income Tax Act. Equity Linked Saving Scheme is primarily known for its tax benefits under Section 80(C). In general, ELSS investment provides higher returns that are partially taxable. You can save a significant amount by making a tax efficient ELSS investment. It stands out among other tax-saving investments as there are multiple other benefits alongside.
- Indirect Equity investment: Equity funds are mutual fund investments that are known for being high-risk as they invest mainly in stocks and shares. The returns offered by equity funds are also higher due to the greater risk. You might be hesitant to invest your money at such huge stakes, but higher returns are appealing as well. An ELSS investment is the desired middle ground in such a situation. In ELSS, most of the amount is invested in equity-related instruments. Therefore, ELSS investment helps in reaping the benefits of equity funds without undertaking a considerable risk. For a young investor, ELSSinvestment will assure wealth creation without the anxiety of fluctuation in the market.
- Short Lock-in period: A new investor might find it challenging to invest in a long-term financial instrument for saving their money. An ELSS investment is not only tax-saving but also comes at a significantly short lock-in period of 3 years. Other financial instruments offering tax benefits such as PPFs, Fixed Deposits have a much higher lock-in period. On top of that, the higher returns with ELSS investment in such a short period is a valuable advantage. The minimum limit to invest in ELSS in as low as Rs.500, which is an additional advantage for young individuals.
- No Exit Load: Mutual fund companies charge their investors a specific amount of money when they leave a scheme. It is known as the Exit Load and is usually a percentage of the Net Asset Value (NAV) of the mutual funds possessed by the investor. An ELSS investment does not levy such a charge on the investor. It is a stress-free transaction when you redeem the mutual fund units at the time of maturity.
Different people invest their money for various reasons. An investment option that is ideal for you might not work the same for someone else. While there are several benefits to an ELSS investment, as a young investor, you must be informed of the terms and conditions appropriately. It is essential to identify and analyse the purpose of your financial planning to avail of the best possible returns.
If you are planning to make an ELSS investment, it is best to take the help of a renowned financial advisor such as FinEdge to avoid any errors. The services offered by them will help you recognize your needs and make investment choices accordingly. Planning your investments wisely at an early stage will accelerate wealth creation and secure your future.