Investing in Equity Linked Savings Scheme (ELSS) mutual funds offer twin benefits of tax deductions and best returns. If you are a young earner then you must take advantage of your young age by investing in ELSS and unleash the power of compounding.
You are allowed to invest in a systematic investment plan (SIP). Investing in a SIP helps in inculcating financial discipline by forcing you to set aside a fixed sum on a regular basis.
Following are the ways of maximising returns by investing in SIPs:
1) Start at a young age: In your initial years of professional life, you would be tempted to take home a higher pay. This is when you can take the biggest advantage of your young age by investing in equity-linked schemes. Investing in ELSS is ideal. Your commitments and expenses would not be much and you can invest in ELSS comfortably through SIP.
2) Bump up your SIP amount: You must consider increasing your SIP amount on a yearly basis. Give your SIP an appraisal just like you get one each year. If you have surplus funds, then it’s wise to invest in ELSS rather than spending unnecessarily. Increasing SIP helps in realising financial dreams much earlier.
3) Give your investments more time: ELSS mutual funds are linked with equity markets and they are volatile. You shouldn’t be discouraged to invest when the markets are down. Nobody can time the market. You can consider pumping in more money when the markets are down. This would boost your returns.
4) Withdraw through SWP instead of one-time withdrawal: Just like you invest on a regular basis through SIPs, you can withdraw on a regular basis through a systematic withdrawal plan (SWP). SWP is a tax saving tool. You can optimise on long-term capital gains tax by withdrawing through SWP.
Starting early is the key. You must consider investing in SIPs and withdrawing in SWPs in order to get the best returns on your mutual fund investment.
Engineer by qualification, financial writer by choice. I am always open to learning new things.