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Equity Funds and ELSS?

Author: Shashank Pawar
by Shashank Pawar
Posted: Jun 19, 2020

An Equity Fund is a Mutual Fund Scheme that invests predominantly in shares/stocks of companies. Simply put, equity funds are essentially listed as stock market securities. An equity fund essentially invests in company shares and aims to provide the benefit of professional management and diversification to ordinary investors. Most investors choose equity to generate long-term returns. Equity mutual funds are principally categorized according to company size, the investment style of the holdings in the portfolio, and geography. The size of an equity fund is determined by market capitalization, while the investment style, reflected in the fund’s stock holdings, is also used to categorize equity mutual funds.

Although the performance of the company plays a significant role in deciding the investors’ returns. You should be in sync with your risk profile, investment horizon, and objectives to invest in equity funds. Mainly, if you have a long-term goal, then it is better to invest in equity funds. It will also give the fund much needed time to combat market fluctuations.

Equity Mutual Funds are practical investments for most people. The attributes that make equity funds most suitable for small individual investors are the reduction of risk resulting from a fund’s portfolio diversification and the relatively small amount of capital required to acquire shares of an equity fund. A large amount of investment capital would be required for an individual investor to achieve a similar degree of risk reduction through diversification of a portfolio of direct stock holdings. Pooling small investors’ capital allows an equity fund to diversify effectively without burdening each investor with large capital requirements. The price of the equity fund is based on the fund’s net asset value (NAV) less than its liabilities. A more diversified fund means that there is a less negative effect of an individual stock’s adverse price movement on the overall portfolio and on the share price of the equity fund.

Mutual Fund taxation differs from one type of mutual fund to another. Equity Linked Savings Scheme is an equity mutual fund investment that invests at least 80 percent of its assets in equity and equity-related instruments. ELSS is a tax saving Mutual Fund, mainly for investors who are salaried professionals and face tax-cuts every year. Investments in an ELSS qualify for tax deductions under Section 80C of the Income Tax Act within the overall limit of?1.5 lakh. The amount you invest in ELSS is deducted from your taxable income, which helps you lower the amount of income tax you are liable to pay. Investments in ELSS are subject to a three-year lock-in period and the returns from the scheme, i.e. dividends and capital gains, are tax-free.

The majority of ELSS funds are invested through equity schemes, hence they have the potential to offer significantly higher returns. ELSS also offers better post-tax returns than other 80C options. These schemes have a lock-in period of three years from date of units allotment. Once the lock-in period is over, the units are free to be redeemed or switched. Also, you can choose to stay invested after the stipulated lock-in period of 3 years for as long as you want.

About the Author

Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli

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Author: Shashank Pawar

Shashank Pawar

Member since: Dec 24, 2018
Published articles: 50

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