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As much as market fluctuations drive an investment market, myths also influence the market. For Equity Linked Savings Scheme, the myths also overshadow funds.
These myths often emerge due to the need for appropriate knowledge and financial understanding. This is concerning various components of ELSS mutual funds.
They could create chaos amongst investors. They could also prevent new investors from trusting ELSS funding. In turn, this leads the invested policyholders to make wrong decisions.
Dissecting Misconceptions About ELSS Funds.
Myth 1: High Risk, High Return.
The terms high risk and higher return have become synonymous with the ELSS funds. This common belief that policyholders with a higher risk rate are more likely to yield higher returns has surely shaped investors' perceptions about investing in ELSS assets.
The myth about higher risk and higher return emerged because ELSS is an equity-oriented mutual fund. Asset classes such as stocks indeed fall under this myth. However, ELSS funds take a balanced approach towards distinguishing their risk management.
Rather than investing all your wealth in one asset and taking high risk, your ELSS portfolio is managed to diversify your investments. This is done across different asset classes for higher returns.
Myth 2: ELSS Investments Demand Big Initial Capital
The flexibility of ELSS funds is often misunderstood by investors. Also, the myth is that an individual requires ample capital upfront.
This myth halts a lot of aspiring investors from taking advantage of the ELSS funds. The truth behind this myth is that you can take advantage of Systematic Investment Plans ( SIPs) as an investor. You can make a smaller yet consistent contribution to your investment amount using this.
You can make these contributions at a predefined time interval, like monthly or yearly. Hence, as an aspiring investor, you can start your ELSS fund without fearing a higher initial capital resource.
Myth 3: ELSS Funds Guarantee Tax-Free Returns
ELSS funds are known as one of the best tax-saving mutual fund options. However, more clarity between tax-saving and tax-free has resulted in the creation of myths.
The misconception that ELSS funds guarantee tax-free returns creates wrong expectations for investors. The truth is that ELSS funds offer Tax deductions under Section 80C of the Income Tax Act. The investors are eligible for a deduction, not free, in their taxable income up to ₹ 1.5 Lakh.
ELSS funds have a lot of benefits. However, it is necessary to clarify that they offer tax benefits and do not guarantee a tax-free return.
Myth 4: Limited Investment Options in ELSS Funds.
Another myth that hovers in the realm of ELSS funds is that you need more investment options in ELSS. A major reason behind this misbelief was a need for more understanding of the ELSS fund's structure. Contrary to this myth, ELSS funds are not bound to a specific investment style or a narrow range of sectors. There are multiple sectors and industries where an investor can avail of opportunities.
Myth 5: ELSS Funds Lack Liquidity Due to Lock-In Period
Many stories are built around the lock-in feature of ELSS funds. One of the myths that needs to be debunked is that policyholders cannot liquidate their investments. It is true that there's a lock-in period that was introduced to promote a disciplined and long-term commitment for investors.
However, a certain form of liquidity is offered under partial liquidity through Systematic Withdrawal Plans ( SWP). Under this, a policyholder can withdraw a certain amount of cash regularly. This is done while remaining invested in the fund and continuing to benefit from the market growth.
Myth 6: ELSS Funds Are Only for Experienced Investors
No doubt, ELSS funds are one of the unconventional equity investment plans. But that does not imply that it requires substantial finance knowledge. Rather, it is a myth that only experienced investors can get their wealth into this market.
To some extent, the reason behind this misjudgment is the relation between equity investments and mutual funds. In comparison, the ELSS mutual funds are designed to cater to investors with beginner to advanced levels of expertise.
Moreover, you are also assisted by a personal portfolio manager who helps you decode market trends.
Myth 7: ELSS Funds Are Solely for Tax Saving.
With so much emphasis on tax-saving benefits, there needs to be a misconception built upon ELSS funds that their main objective is to save on taxes. However, investors resort to ELSS investments mainly for wealth creation.
Hence, they go beyond the tax-saving factor and help you get superior returns through equity investment.
Myth 8: ELSS Funds Are Tied To Market Timing
Since ELSS funds have a lock-in period, it is often assumed that the investors must predict the market profile accurately. This, in turn, helps in driving their profits. It is important to highlight that this is just a myth. The reality of this myth is that ELSS funds are not tied to market timings. Rather, they embrace a disciplined strategy and systematic investment.
Myth 9: ELSS Funds Are Too Complex
ELSS funds include multiple factors like tax benefits, equities, and lock-in periods. This leads to a lot more complexity. However, in reality, the funds are quite simple. They have a diversified approach towards the investment spectrum and are accessible to all.
Conclusion
In conclusion, debunking ELSS myths is essential to bring awareness to investors. Through this blog, we highlighted that ELSS funds are simple and designed to provide Tax benefits and potential growth. Considering a life insurance policy is also a great choice if you are looking for tax-saving options. Plan and strategize your investments, keeping in mind your financial goals.
