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Investment in Mutual Funds & ELSS - By CA Rupesh Ashok Taori, Pune |
Investment in Mutual Funds & ELSS
Mutual Funds & ELSS are the most fancy products nowadays. More and more people are choosing Mutual Funds & ELSS and most of tax saver funds are getting overwhelming response. There are certain factors who have make it the best product among the all tax saving products
Expectation of High return
Equity market is more than 10% down from its peak of 41000 points (Sensex). This level of 36000-37000 is a good opportunity to enter in market. Investors who lost the chance to reap the market run after COVID 19 affected the global economy in March 2020 will be able to find a safe level to enter in market. This is the reason that more and more investor are investing in Mutual funds & ELSS for Section 80C deduction as they expect a little more than normal return. In Mutual funds & ELSS investment time horizon will be automatically long term as there is a lock in period of three years (For Tax Saving Investments only).
Economic Impact:
As we know that the economy over the world is falling and Indian market is also affected by the same. The government is offering Moratorium and additional Loans of 20% to 30% on existing loans to the companies. This will result in lowering the rate of Interest in the future. There is a negative relationship between the rate of Interest and stock market. If the rate of Interest falls the companies cost of borrowing the funds will reduce and it will ultimately result in higher profits. Thus, the share prices of the companies will rise and in such a scenario the Mutual Funds & ELSS will give us the higher return as compared to FD’s, PPF & other government securities.
Less return in other 80C products
Where the equity is expected to fetch better return, other products for tax saving under section 80C of Income Tax Act are expected to fetch lower rate of ROI as interest rate is falling and fixed interest bearing products like FD, PPF, NSC or PF won’t be able to fetch a high return of income, not enough to cover the inflation. Thus more people are choosing the Mutual Funds & ELSS over FD and PPF.
Least Lock-in Period
Mutual Funds & ELSS has least lock-in period in comparison to other investment options for tax exemption under Income Tax Act. Like FD is having the Lock in period of 5 years whereas Lock in period for PPF is more than 7 years. Investors choosing Mutual Funds & ELSS over FD’s will be having more liquidity and will be able to reinvest their money soon.
Systematic investment of small amounts
Best thing with Mutual Funds & ELSS is that you can invest in them via “SIP” (Systematic Investment Plans) means you don’t need to make outflow of cash at one time in year end when you are already suffering from cash crunch. But you can start an SIP and a small amount will be deducted from your account every month on a fix date chosen by you. In this manner it will complete your investment by the year end automatically.
Although market risk is always there in equity based products but ELSS being a long term product give enough time to recover any negative situation. Also the downfall in equity market in last one year has provided a good opportunity to enter in market.
This is the time when smart investors will enter into the market and over smart will ignore it citing the return of past 8-10 months. Yes it’s negative because market always makes a correction and that is the perfect time to enter and give it enough time to perform. And then if we are getting a tax exemption also it is even better. Hope you will make a smart decision but never forget the basic rules. Invest systematically and always keep a time horizon of more than 2 years, keep some emergency money with you so that you won’t have to redeem your investments in loss. Keep this in mind and start your wealth building from today itself.
(Note: Mutual Fund investments are subject to Market risk read all scheme related documents carefully before Investing)
Note: We do not promote or deal in mutual funds or any other security and the article is only for Knowledge sharing purpose.
by CA Rupesh Ashok Taori
Pune
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