A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What are the benefits of investing in ELSS funds?
Equity Linked Savings Schemes are capital-oriented, tax-saving mutual funds that help you save taxes under Section 80C of the IT Act, while offering the growth potential of stocks. In addition to these two benefits, they have a lock-in period of less than 3 years, which is the shortest lock-in period that can be obtained in the category of tax saving products.
ELSS also offers few additional benefits by virtue of being a capital-oriented mutual fund. You can invest in ELSS via SIP or lumpsum as you like. The SIP feature is beneficial to the wage-earner class as they may prefer to set aside a fixed amount each month for savings taxes rather than invest in a lump sum at the end of the year. They can continue with their SIPs year after year while they continue to stay busy.
While the 3-year lock-in period is
essential, an investor has the option to continue his investment even after the lock-in period is over, unlike other tax savings products where your money automatically accrues or stops earning interest after the lock-in period ends. An investor can stay invested in the fund for as long as he wants and the longer the investor stays still, the lower his investment risk, while the chances of earning a higher return increase with time.
