Why is it a Good Idea to Invest in Equity Funds?

 

To meet long term financial goals, equity mutual funds are the best option. Despite the availability of several financial instruments on the market, equity-generated capital appreciation is the most significant in the long run. For example, in the previous 5, 10, and 15 years, Sensex has provided CAGRs of 15.71 per cent, 11 per cent, and 10.96 per cent, respectively. This is higher than provident fund interest rates, which stayed in the range of 8.25 per cent to 9.5 per cent per annum for the previous 15 years.

Moreover, investors looking to get higher tax-free returns can opt for ELSS Funds in India. Equity Linked Savings Scheme or ELSS Funds are tax-saving equity mutual funds under Section 80C of the IT Act,1961.

ELSS Funds in India

ELSS funds are equity-oriented plans that invest a significant percentage of their capital in equities or equity-related securities. Because there is a three-year statutory lock-in, the capital gains achieved by investing in ELSS funds are long-term capital gains (LTCG) that are tax-free (up to an income of Rs.1 lakh).

Important Features of ELSS Funds

• The ELSS funds in India invest a minimum of 65 per cent of assets in equities or related instruments.
• The funds are invested diversely, with allocations in big, mid, and small-cap companies based on market circumstances.
• The investment fund has no maximum duration. There is, however, a three-year lock-in term.
• Under the IT Act, an investor can claim a deduction of Rs. 1.5 lakh from his gross total income each year.
• The income generated through the fund is taxable as per the current laws.
  

Why Invest in Equity Funds?

It is not always possible to keep track of the market movements, hence investing in equity funds is a good idea.

Moreover, the funds offer several benefits to investors such as:

Diversification

The ELSS funds invest in companies belonging to different sectors and themes. Companies with a market capitalization ranging from big to small receive allocations based on market conditions and prospective returns. This helps you to diversify your financial portfolio.

No Entry Barrier

Most investment funds enable investors to begin investing with as little as Rs. 500. A person can start investing with a nominal amount and can increase the amount at his convenience.

SIPs

Investors can pay in a single instalment as a lump sum amount, although most individuals prefer the SIP approach. This provides tax advantages as well as the potential to create a large corpus.

Long-Term Financial Goals

Long-term returns on equity funds are considerable. Because markets are turbulent, market swings may be readily handled by staying invested for an extended period. This is advantageous to an investor since the rule of averages takes effect. Investing in equities mutual funds might thus help you accomplish your long-term goals in two ways. For starters, it will provide significantly greater returns than debt funds. Also, since you are investing over a longer period, the risk element decreases significantly.

Given the benefits provided by ELSS funds in India, they have become the preferred choice for investors, particularly young ones. As they seek not just high returns but also tax advantages, making equity funds a good replacement for traditional investment options.