ELSS Mutual Funds: How It Helps in Retirement Planning

Equity-Linked Savings Schemes are an essential part of financial planning. They are tax-saving instruments with a three-year lock-in period and hold the potential to generate better capital growth with time than traditional options. They are a form of pooled investments, where the fund managers pool the investors’ money in a diverse Equity portfolio.

The lock-in period also works to your advantage as the fund manager takes longer value bets in the Mutual Fund portfolio than worrying about redemption every time the markets fall. A professional fund manager actively manages them by selecting stocks and Bonds based on research, analysis, and risk appetite.

Retirement planning

ELSS plays an important role in retirement planning. All retirement advisors and experts advise you to invest aggressively in Equity Funds during the accumulation phase. They enable you to create a portfolio providing higher potential capital growth with time. You should consider the risk levels you want to take while investing in them. Higher-risk funds can bring about higher returns and losses in the short term.

Consider the fees associated with the fund, as these significantly impact the returns. Retirement planning also involves diversification of investments across different funds. Tax-Saving Funds should be a part of a diverse portfolio, along with other Mid-Cap, Small-Cap, and Flexi-Cap Funds to reduce the loss risks.

Reviewing investments

Find the best retirement plan suiting your needs and regularly review your investments. Ensure you are on track to meet your goals. It may involve adjusting your portfolio, such as re-balancing them to invest in new funds and taking advantage of changing market conditions.

Features

When investing in Tax-Saving Funds, a minimum of 80% of the assets should be invested in Equity Funds and related instruments. You need to invest at least Rs. 500 in them with no upper limit. Moreover, you are eligible for tax deductions of Rs. 1.5 lakh under Section 80C of the Tax Act. You can select either the growth or dividend option while investing. Decent returns are possible.

Things to consider

Several fund houses in India offers the scheme. To decide on a particular plan, you need to monitor the fund’s past performance for consistent returns, analyse the risks, identify your appetite, and opt for schemes with a lower expense ratio and higher fund rating. With a lower lock-in period, you get the much-needed flexibility to withdraw money during emergencies.

While the risk factor is high, you can earn reasonable yields in the long run after investing in such a Mutual Fund scheme.

Conclusion

Money is essential, especially during retirement to meet emergencies. It can give you the liberty and time to travel the world, relax at home, spend time with your loved ones, or explore your hobbies. If you aim to make the most of your golden years, start planning today. Likewise, you also benefit from income stability.