1] What are Mutual Funds?
A Mutual Fund is a professionally managed fund, where money is pooled from several investors to invest in Securities. Mutual funds are usually distinguished based on their principal investment. Such as Money market funds, bonds or fixed-income funds, and equity funds. They may have a combination of some of them, which is known as a hybrid fund. Also, you get a wide variety of options while investing in mutual funds as there are Mutual funds based on an index known as an index fund, you also find mutual funds that are based on a certain sector. The person who manages the Mutual fund is known as the fund manager. The average return on mutual funds falls somewhere between 8-12%. But some may go as high as 30-35% if you’re lucky enough. The main advantages of the mutual fund include low risk, professional management, and diversification. A mutual fund is increasingly becoming a favoured choice of investors as it doesn’t require much time to research, you just have to find a good fund and you start with as low as ₹100 with SIP.
2] What are EQUITY LINKED SAVING SCHEMES (ELSS)?
EQUITY LINKED SAVINGS SCHEME is also a type of mutual fund, where the allocation of funds is more towards equity or equity-based securities, around 65% of your portfolio is made up of stocks. ELSS mutual fund is the only fund that is eligible for tax deductions under Section 80C of the Indian tax provision.
Some of the money may also be invested in fixed income securities, these funds come with a lock-in period of just 3 years, and that is considered the short duration for a tax-saving investment. You can claim a tax exemption of about 1.5 lakh and save another 46,800 a year by investing in ELSS mutual funds. ELSS mutual funds have dual benefit tax exemption and wealth creation, and you can even get inflation-beating returns on ELSS funds.
But one of the worries can be there are no provisions for the premature exit. There is no upper limit for investment in ELSS funds, but you would have some minimum investment based on your fund.
3] Should you invest in multiple EQUITY LINKED SAVING SCHEMES?
You may invest in 2-3 ELSS funds, but if you invest in more than 2-3 funds, you may end up overlaying your investments, usually a fund invest in 80-100 large-cap companies, and if you invest in more than 2-3 funds you’re investing in same companies, which would make no sense if you’re looking for diversification and your portfolio would be nothing different from an index fund.
Also, you need to know that the tax exemption is only up to 1.5 lakh, so if you invest more there would be no tax benefit.
Also, ELSS funds have a lock-in period of 3 years and no provision for premature withdrawal so investing in a high number of ELSS funds would just freeze a high amount of your funds and that could be a problem in case of emergency.
And if you invest a high amount of money in ELSS funds then it could be a problem in case the market crashes, then your investment would be at risk, as a major part of ELSS is made of equity stocks.
Conclusion – Overall you should not invest in more than 2-3 ELSS FUND because it would just make no sense in doing so. Having one ELSS FUND in your portfolio can be a good option as it would diversify your investment and provide tax benefit as well.
A Mutual Fund is a professionally managed fund, where money is pooled from several investors to invest in Securities. Mutual funds are usually distinguished based on their principal investment. Such as Money market funds, bonds or fixed-income funds, and equity funds. They may have a combination of some of them, which is known as a hybrid fund. Also, you get a wide variety of options while investing in mutual funds as there are Mutual funds based on an index known as an index fund, you also find mutual funds that are based on a certain sector. The person who manages the Mutual fund is known as the fund manager. The average return on mutual funds falls somewhere between 8-12%. But some may go as high as 30-35% if you’re lucky enough. The main advantages of the mutual fund include low risk, professional management, and diversification. A mutual fund is increasingly becoming a favoured choice of investors as it doesn’t require much time to research, you just have to find a good fund and you start with as low as ₹100 with SIP.
2] What are EQUITY LINKED SAVING SCHEMES (ELSS)?
EQUITY LINKED SAVINGS SCHEME is also a type of mutual fund, where the allocation of funds is more towards equity or equity-based securities, around 65% of your portfolio is made up of stocks. ELSS mutual fund is the only fund that is eligible for tax deductions under Section 80C of the Indian tax provision.
Some of the money may also be invested in fixed income securities, these funds come with a lock-in period of just 3 years, and that is considered the short duration for a tax-saving investment. You can claim a tax exemption of about 1.5 lakh and save another 46,800 a year by investing in ELSS mutual funds. ELSS mutual funds have dual benefit tax exemption and wealth creation, and you can even get inflation-beating returns on ELSS funds.
But one of the worries can be there are no provisions for the premature exit. There is no upper limit for investment in ELSS funds, but you would have some minimum investment based on your fund.
3] Should you invest in multiple EQUITY LINKED SAVING SCHEMES?
You may invest in 2-3 ELSS funds, but if you invest in more than 2-3 funds, you may end up overlaying your investments, usually a fund invest in 80-100 large-cap companies, and if you invest in more than 2-3 funds you’re investing in same companies, which would make no sense if you’re looking for diversification and your portfolio would be nothing different from an index fund.
Also, you need to know that the tax exemption is only up to 1.5 lakh, so if you invest more there would be no tax benefit.
Also, ELSS funds have a lock-in period of 3 years and no provision for premature withdrawal so investing in a high number of ELSS funds would just freeze a high amount of your funds and that could be a problem in case of emergency.
And if you invest a high amount of money in ELSS funds then it could be a problem in case the market crashes, then your investment would be at risk, as a major part of ELSS is made of equity stocks.
Conclusion – Overall you should not invest in more than 2-3 ELSS FUND because it would just make no sense in doing so. Having one ELSS FUND in your portfolio can be a good option as it would diversify your investment and provide tax benefit as well.