Mutual funds serve as the most opted for investment vehicle that investors select to generate wealth over a long period. With consistent investments in mutual funds, investors can generate exponential growth in their investments. Equity-linked Savings Schemes were once such a type of mutual fund category. Both traditional mutual funds invest in plants and ELSS mutual funds help investors with wealth generation. However, investors must understand the difference between the two types of investment to select the best that matches their preferences and financial goals.
Mutual fund investment plans
Mutual funds investment plans refer to a broad category of diverse mutual fund categories that investors can select based on their preferences. Consistent investments over the long term through SIPs or one-time investments can deliver an opportunity for investors to generate exponential wealth.
Following is a list of common mutual fund investment plans that investors can select:
–Equity mutual fund
As evident from its name, equity mutual funds include stocks of companies listed on the stock market. Helping with wealth generation over the long term, equity mutual funds are known for their high risk as well as high returns.
–Debt mutual funds
Debt mutual funds comprise securities that offer a fixed return thereby delivering reliability and security to the investors. These include fixed government bonds and other securities.
–Hybrid funds
The hybrid funds comprise both equity and debt-based securities.
Systematic investment plans or SIP is the most preferred option to make investment in a mutual fund investment scheme. With twin benefits of rupee cost averaging and long-term wealth creation, investors can generate exponential wealth through systematic investment plans and investment into mutual fund schemes.
Equity-linked saving schemes
Equity-linked saving schemes or ELSS serve as a special type of mutual fund that offers an investment opportunity into equity. Moreover, investment into ELSS allows investors to claim a deduction under section 80 C of the Income Tax Act. With a three-year lock-in period, equity-linked saving schemes offer an extensive range of benefits that can match the individual preferences of certain types of investors.
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Differences between mutual funds and ELSS
-Tax benefits
Simple mutual fund investment plans do not offer any kind of tax benefits. On the other hand, ELSS mutual funds offered a tax benefit which includes deduction of an amount upto ₹1.5 lakh under section 80 C in a financial year.
–Return potential
The return potential from mutual fund investment plans depends upon its type. An equity mutual fund can deliver better returns than debt-based mutual funds. Returns from ELSS depend upon its underlying stocks which can be quite high and are market-linked.
–Liquidity
Investors receive high liquidity from investments in mutual fund schemes. On the other hand, ELSS mutual fund plans do not offer the same level of liquidity due to its lock-in period of three years.
Conclusion
Simple mutual fund investment plans can prove suitable for investors who wish to generate consistent returns over a significant period. Moreover, investors who prefer liquidity for their investments must opt for mutual fund plans. Equity-linked saving schemes are suitable for investors with a long-term investment objective who are comfortable with higher risk. Careful selection of the right mutual fund plan is essential to achieve one’s financial goals.
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