Equity-linked saving schemes (ELSSs) are an increasingly popular investment choice in India for investors seeking tax savings and long-term capital appreciation. These mutual funds primarily invest in equity-related instruments with the potential for higher returns. Value ELSS funds specialize in investing in undervalued stocks with strong fundamentals to deliver long-term growth potential. This article touches upon how to invest in value ELSS funds long term.
Understanding value ELSS funds
Value ELSS funds take an active value investing approach by seeking stocks that are underpriced relative to their intrinsic value. Fund managers search for companies with strong business models, robust financials, and capable leaders who may be trading at discounted prices due to market conditions. Their primary aim is long-term capital appreciation while providing tax benefits under section 80C of the Income Tax Act.
Steps for long-term investment of value ELSS funds
- Set your financial goals
It is essential to set clear financial goals before investing in value ELSS funds, to meet their lock-in period of three years and allow investments time to grow without market fluctuations affecting them. Set out your investment horizon, risk tolerance, and the amount you intend on committing before beginning this investment journey.
- Research and select an ELSS fund
Selecting the proper value ELSS fund is crucial to reaching your financial goals. Look for funds with a track record of outperforming both their benchmark and peer funds over the long term, and evaluate their portfolio, investment strategy and fund manager’s expertise in value investing before diversifying by selecting funds with different investment styles or market capitalization focuses.
- Open an investment account
To invest in a value ELSS fund, either approach an asset management company directly or utilize an online investment platform. Either way, to complete know your customer (KYC) procedures you must submit identification proof, address proof, pan card number and a recent photo. Once KYC verification is complete, you may open your investment account.
- Start investing
After opening an investment account, the next step should be investing. Either make a lump-sum contribution or opt for systematic investment plans (SIPs), which invest a fixed amount periodically, helping inculcate investment discipline while protecting from market fluctuations by spreading out costs evenly over time.
- Monitor your investments
Monitor your investments regularly to make sure they’re on track to meeting your financial goals. Keep an eye on fund performance, portfolio composition and any changes to management or strategy; if one underperforms repeatedly, consider switching to an ELSS fund that performs better.
Tips to invest in value ELSS funds
- Invest for the long term
Value investing requires a long-term horizon since undervalued stocks often need time to realize their true potential. Stay invested beyond the three-year lock-in period in order to maximize returns and harness compound interest’s power of compounding.
- Be patient and disciplined
Value investing requires patience and discipline, as it may take the market some time to appreciate the true worth of undervalued stocks. Stick with your investment plan, resist the urge to exit when temporary market downturns arise and refrain from selling out during temporary fluctuations in price.
- Avoid timing the market
It is often impossible to accurately forecast market movements. Instead, implement a disciplined investment approach through SIPs that can reduce fluctuations’ impact and help safeguard long-term returns.
- Review and rebalance your portfolio
Review your portfolio on a regular basis to ensure it still aligns with your financial goals and risk tolerance, possibly reallocating investments among different asset classes or switching funds based on performance.
Long-term investing in value ELSS funds can be a profitable strategy for those seeking tax-saving benefits and capital appreciation. By setting clear financial goals, researching available funds, and following a disciplined investing approach, investors can maximize long-term returns and achieve their financial objectives.