5 crucial reasons why ELSS should be the first choice for young investors
As a young investor, you know the freedom that comes in earning money for yourself….
However, with freedom comes the responsibility of saving & investing your money in the right avenues to build a secure financial future.
To do this, at Finbingo, we highly recommend the Equity Linked Savings Scheme (ELSS) to all young investors. And below we share with you 5 crucial reasons why we say so.
Reason # 1: Young investors can afford to take higher risk:
Increasing income, fewer responsibilities, and time on hand to goals like retirement mean you can afford to take a higher risk with your money.
Equity is the only asset class that rewards a risk-taking investor with higher returns over the long term. And the best way to invest in equity is through ELSS.
Reason # 2: Higher returns in ELSS magnify the compounding effect:
If we say wealth creation is not a difficult task, you may ask – “Why then so few investors end up creating wealth”? The answer is: People don’t want to take the slow train towards wealth creation…Everyone wants it fast…
Wealth creation is like sowing a seed….is a reward of patience and comes by keeping money “in the market” for extended periods…
Compounding is the act of not withdrawing your returns from the investment. Over time this creates a chain reaction….
As a young investor, since you have time, you have this excellent opportunity to benefit from compounding that older investors don’t have.
Since equity has historically given the highest returns over time, when you invest in ELSS for long periods, you help magnify the compounding effect…
And this helps you create much more wealth as compared to low return avenues like PPF and NSC.
Reason # 3: ELSS is a transparent & hassle-free investment
Your preferred way would most likely be online, that too at your convenient time…isn’t it?
Also, as an informed investor, you want to invest in a financial product that is clear & transparent on risk and return…
ELSS ticks all the above boxes for you in the following ways:
- You can invest & redeem your funds online – no hassle of visiting any office, filling long forms, or interacting with pesky agents….
- Your investment is very closely regulated – this means that as an investor, your interests are fully protected.
- Scheme details like performance, portfolio allocation, cost structure, risk factors, lock-in, etc. are available publicly. This can help you carry out a comparative analysis of the schemes & select the best scheme.
Reason # 4: ELSS can help you develop a savings habit
As a young investor, we hope you’ll agree with the timeless advice above. Unlike other investment avenues, you can create an ELSS SIP at less than ₹500 every month.
This means that every month, without any action on your part, INR 500 will get auto-deducted from your bank account & get invested in the ELSS scheme.
As a young investor, this SIP can go a long way in helping you create wealth & secure your future over time.
Reason # 5: Better than other avenues like ULIP or NPS:
- ELSS has a lower lock-in period of 3 years as compared to NPS (till you reach 60 years of age) ULIP (5 years)
- ULIP is a relatively high-cost product which requires you to unnecessarily bundle insurance & investment. As compared to that, ELSS is very much transparent & low cost.
- NPS is an excellent low-cost investment, but it is primarily suited only for retirement given its long lock-in period. As compared to that, ELSS can be used to save for any long-term goal.
- If fund performance is not satisfactory, in ULIP, there is no scope of shifting to another scheme. That is not the case with ELSS.