Introduction
It’s an essential choice to put your hard-earned money towards a worry-free, secure future. There are numerous ways to invest and save money that can result in a higher return in the long run. The ELSS Scheme is one of the most effective and widely utilized investment techniques. It is known for generating significant returns while managing Tax liabilities. Several mutual funds, provide competitive interest rates on ELSS programs. It is a type of savings option that helps with Section 80C tax exemptions.
The entry of the Parag Parikh Tax Saver Fund has gained a lot of limelight in the finance industry. This scheme was launched on 5th July 2019 with a strong Asset Under Management (AUM) at Rs.2977.16 Cr as of 29th Feb 2024.
In this article, investors will receive a comprehensive guide to the scheme’s targeted goals and purposes. Identifying the right mode of investment for the long run making absolute returns. It will also give insights into the mastermind behind the fund’s success. Let us begin with learning the fund’s investment objective.
Studying the Fund’s Main Goal
- The investing approach focuses on long-term capital appreciation to maximize wealth over time.
- It aims for a consistent rise in portfolio value.
Spreading investments across sectors and asset classes reduces risk while increasing possible profits. - Ensuring regulatory compliance allows investors to take advantage of the tax benefits offered by ELSS.
- A thorough analysis of market trends and business fundamentals informs investment decisions, increasing the likelihood of success.
- Active portfolio management to capitalize on market opportunities and mitigate risks
- Dynamic portfolio modifications allow you to capitalize on market moves while reducing any disadvantages.
- Promoting a consistent, long-term investing attitude leads to increased wealth growth and stability over time.
- Continuous monitoring and frequent evaluations of the investment portfolio.
- Ongoing evaluation of portfolio performance enables rapid modifications and optimization of investment strategy.
- Prioritizing openness and engagement with investors via updates and reports.
- Open communication and frequent reporting keep investors informed and involved throughout the investing process, creating trust and confidence.
What are the Pros & Cons of investing in Parag Parikh Tax Saver Fund?
This fund scheme has its merits and demerits. These are based on various factors such as:
Here are the advantages of investing in this fund scheme:
Diversified Portfolio
The fund invests in a variety of sectors and asset classes, decreasing the risk associated with a particular industry or firm.
Skilled Management
The fund is managed by skilled experts who do extensive research and analysis, which may lead to superior investing selections.
Long-Term Growth Potential
The fund seeks long-term capital appreciation, consistent with the investment horizon. These are often associated with ELSS funds, which can result in significant wealth accumulation over time.
Tax Benefits
Like other ELSS funds, investments in the Parag Parikh Tax Saver Fund are eligible for tax deductions under Section 80C of the Taxation of Income Act. It allows investors to save money on their taxes.
Now that we know the merits let us revise the disadvantages as well:
Market Risk
The Parag Parikh Tax Saver Fund, like any equity-linked investment, is subject to market swings and volatility. The value of investments might change depending on market conditions.
Currency Risk
Because the fund can invest in overseas shares, investors may be subject to currency risk as exchange values fluctuate.
Expense Ratio
The fund has an expense ratio, which is taken from its assets to pay management fees and other costs. While this is typical practice for mutual funds, it can influence total results.
Liquidity Constraints
While ELSS funds provide tax benefits, they have a three-year lock-in period, which limits liquidity. Investors should think about their liquidity requirements before investing.
Performance Dependency
The fund’s performance is influenced by a variety of factors. These include market circumstances, economic developments, and the fund manager’s actions. Poor performance might mean lesser profits for investors.
What should we do SIP or Lumpsum in this plan?
The decision to invest in the Parag Parikh Tax Saver Fund via SIP or lump sum is influenced by several factors. It includes financial goals, risk tolerance, and investment horizon. Here are some concerns for SIP and lump sum investments:
In an SIP these are the benefits offered to the investors:
Rupee Cost Averaging
With SIPs, you may invest a predetermined amount regularly, independent of market conditions. This aids in rupee cost averaging since you purchase more units when prices are low and fewer units when prices are high, thus mitigating the impact of market volatility.
SIPs encourage discipline
Investing by automating the investment process. It helps to avoid the temptation to time the market and assures consistent contributions to your investing goals.
Reduces Timing Risk
SIPs spread your investments across time, lowering the likelihood of investing a significant quantity at an inconvenient moment. This can be especially useful in stormy markets.
Suitable for monthly Income
SIPs are perfect for investors who earn a consistent income. Seeking to invest a portion of their earnings every month.
Lump sum investment offers the following benefits:
Potential for Better Returns
Lumpsum investments have the potential to provide better returns than SIPs. Particularly if made during a market downturn or when the investment is undervalued.
Lumpsum investments give instant market exposure
It allows us to profit from any possible market upside without having to wait for future investments.
Less Administrative Hassle
Lumpsum investments require less administrative effort. As you only make one investment rather than setting up and administering many SIPs.
Suitable for Windfall Gains
Lumpsum investments are ideal for investors who receive a windfall amount. Such as bonuses, transfers of wealth, or asset sale profits, and wish to invest it all at once.
Conclusion
Finally, investing in the Parag Parikh Tax Saver Fund has the potential to generate long-term wealth while also giving tax savings under Section 80C. The fund’s diverse portfolio, professional management, and emphasis on long-term development make it an appealing choice for individuals looking to meet their financial objectives. However, it is critical to examine the related market and currency risks, as well as the expense ratio and liquidity limitations. Individual preferences, financial goals, and risk tolerance all influence whether to invest through a Systematic Investment Plan (SIP) or in lump amounts. SIPs enable rupee cost averaging and disciplined investing, whereas lump sum investments give rapid market exposure and the possibility for higher returns.