An Overview on Investment
Are you afraid of investing? Satisfied with savings bank account deposit? Think again !
The spiralling inflation can make the deposit redundant in the future. For example- 1 Kg of milk was costing around ₹15 at the start of the 21st century. Now in 2017, the cost of the same has gone up to ₹55-60. Similarly, the cost of other food items has also increased over a period of time. And it’s not only about food, even the education and marriage costs have risen and will continue to rise further. So, you need to invest to deal with the inflation of tomorrow.
The term ‘investment’ refers to the purchase of an asset with a view to generate income or appreciate the invested capital in the future. There are a wide range of products where you can invest. The list includes stocks, bonds, real estate and others. However, the best investment route is mutual fund, which invests your money in all the aforesaid securities and others in a careful manner. The fund managers, roped in by the asset management companies (AMCs), undertake in-depth research to pick the best stocks, bonds and money market instruments in accordance with the objective of the select mutual fund scheme.
(2) What is Mutual Fund ?
A mutual fund represents a pool of money collected from varied classes of investors wanting to achieve a common financial goal. The fund manager, based on the objectives of the scheme, allocates the money so collected in different instruments such as equity, bonds, debentures, money market instruments, etc. The asset management companies (AMCs) appoint fund managers, who based on the prevailing market conditions, take a call on the asset allocation. Therefore, it can be said that mutual funds are professionally managed and eliminate the requirement on the part of the investors to track the market on a day-to-day basis.
The best part about mutual fund is that you can start investing here with as low as 1,000 on a monthly basis. This ensures affordability for many investors. As an investor, you can choose one or multiple schemes offered by the AMCs. The selection of a scheme, however, will depend on your financial goals, risk-appetite, investment horizon, etc. Each scheme has a particular investment goal, and the fund manager draws a strategy to achieve the same. You can check out the investment goals and the strategy in the mutual fund offer document.
(3) What is ELSS (Equity linked Savings Scheme) ?
Equity Linked Saving Scheme (ELSS) is an open-ended equity mutual fund that allows an investor to save taxes as well as raise the invested capital with time. It is one of the best tax saving instruments available to the investors. The investment in ELSS qualifies for a tax exemption under Section 80C of the Income Tax Act, 1961. The tax benefit, however, applies in the financial year in which the amount is invested. The investment amount is deductible from the gross annual income for a limit of upto ₹1.5 lakh in financial year when it comes to tax calculation. You can invest in ELSS either through lump sum contribution, or Systematic investment Plan (SIP) that enables investment on a monthly, quarterly, half-yearly or yearly basis.
Even though there are many tax-saver investments in the market today, it’s ELSS that scores over the competing products. With a potential to generate market linked returns, ELSS provides a valuable mean to combat inflationary pressures. It also comes with a shorter lock-in period of 3 years. Additionally, long-term capital gains are tax-free When you look at other tax savers, there aren’t any that provide market-linked returns. Also, the lock-in period in these instruments is 5-15 years, much longer than ELSS.
DISCLAIMER – Mutual Fund investments are subject to market risks. Please read all the scheme related documents carefully before investing.