To be smart investor you need to follow two MANTRA, first and foremost INVEST. It has been proven again and again that for wealth creation equity is the best asset class. It 's a common MYTH that equities are the high-risk portion of investor 's portfolios. But the fact is, with increasing duration of holding in equity, stocks actually become less risky asset of all. Equity, over the long term, actually gives the benefit of better returns than other asset class and helps to create WEALTH without upping the risk taken.
For Instance, if we consider Sensex data from April 1, 2002 to 31st December, 2016, it can be seen that the probability to get positive Sensex return for tenor of one year is 78 % and negative return is 22 % but as we increase the term to 3 years, Sensex return is positive 95 % times and negative 5 % and with tenure of 10 years Sensex has given almost
100 % positive returns. This implies that longer one invest in equity probability of negative return decreases.
Second MANTRA of smart investment is to save your money, but not by spending less but by reducing what you owe -or increase what you get back -when you file your 2017 income tax return. Tax-saving is an important part of financial planning. A smart tax-planning strategy can serve the dual objective of helping one create wealth and save tax in the process.
How can you be a smart investor? How can you save tax and create wealth? Equity linked saving scheme (ELSS) is the answer. It not only save tax but would also provide the long term benefits in terms of wealth creation. If we take average of ELSS schemes, 3 years return (CAGR) is 18 % plus what you save in tax. Isn 't it a smart investment?
Simple logic for wealth creation is to invest for long term in such a way that you not only earn good returns but also save your tax.
How ELSS meets two main requirement of smart investment?
Going by its name, ELSS invests its corpus in equity and equity related products. An investment in ELSS comes with a lock in period of 3 years and has tax benefits attached to it. ELSS schemes are open ended in nature, that is, investors can subscribe to the fund on any day. And, as discussed earlier in this page, EQUITY is the ASSET CLASS for wealth Creation.
Advantages of ELSS:-
- Returns in the forms of dividend and capital gain are totally tax free
- In comparison to the various other investment avenues, ELSS has the shortest lock-in-period of 3 years.
- As it is equity product and for long term, there is an opportunity to earn maximum returns.
- Expenses is low in ELSS, there is no entry load and exit load. And, investment is also tax free.
| Scheme Name
|| CAGR (in percentage) |
| 2 Yr
|| 3 Yr
|| 4 Yr
|| 5 Yr
|| 7 Yr
|| 10 Yr |
| Average of ELSS Fund
|| 10.10 |