How investment in ELSS funds helps investors create wealth in the long term
ELSS has emerged to be one of the attractive investment options recently. But what makes ELSS more attractive? The beauty of these schemes is that it helps you to create wealth in long term apart from offering tax benefits. But how? Let’s find out.To understand this better, let’s take an example.
Let’s say you buy 3,000 units of an ELSS fund at a NAV of Rs.50. As we all know, investment in ELSS are eligible for a tax deduction of up to Rs. 1,50,000.
So, at the basic level, you are eligible up to Rs.46,800/- tax rebate. But hold your breath!! ELSS has more than that. One of the key features of ELSS funds is that they have a lock-in period of 3 years, which means that the investor has to hold on for at least 3 years to liquidate their investments.
This ensures that the investor remains invested for the long-term and does not get swayed by short-term market fluctuations. Probably, this is the reason why ELSS outperforms other equity funds in long term. When the market is low, ELSS funds can purchase more units of the underlying stocks at a lower price.
This is because the fund's net asset value (NAV) is directly linked to the value of the underlying stocks. Consequently, when the market recovers and the underlying stocks' value rises, the NAV of the fund will also increase, resulting in a higher return for the investor. It's a win-win situation for a longer period when market travel through different phases.Cushion for Fund Managers- Equity-linked savings schemes (ELSS) invests primarily in equity shares of companies.
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