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Why Tax Saving Mutual Funds Are A Great Way To Start With Equity

When people invest in equity, they tend to be affected by short term fluctuations. TV and newspapers headlines make it difficult not to be. Market movements play havoc with the mental states of most investors.

Recently, a mutual fund company announced how one of their equity funds had grown 100 times over 20 years. Unfortunately, less than 10% of their investors would have stayed invested for that period.

When people invest in equity, they tend to be affected by short term fluctuations. TV and newspapers headlines make it difficult not to be. Market movements play havoc with the mental states of most investors.

So, is there an easy way to give your equity investments the time they need?

Yes, but you probably think of it as an annual ritual rather than an "investment". We are talking about tax saving ELSS mutual funds. It is meant to provide a deduction under Section 80C of the IT act and you can invest up to Rs. 1.5 Lakh through these mutual funds to lower your taxable income. Because of this, they are also locked in for 3 years - meaning that you cannot withdraw before that - even in an emergency.

This lock-in can prove to be a boon for you as an investor learning to give your equity investments time. Your investment gets 3 years of uninterrupted time to grow. Even if markets bounce around in the short term you can't do much about it and hopefully you will learn to let your investments be.

Starting your equity journey with tax saving funds is a smart way to learn how to invest in equity for the long term (the only way there is).

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