Equity Linked Saving Scheme (ELSS) is a popular mutual fund that offers tax benefits under Section 80C of the Income Tax Act, allowing investors to claim deductions of up to Rs 1.5 Lakh on investments in this fund. Like most investments under this section, ELSS funds are came with mandatory lock-in periods of three years.
Many investors who dip their toes into equity markets have some ground rules that involves time in the market. It is believed equities will only benefit investors in case it is held for several years. Investors should not be perturbed by short-term stock market fluctuations as these generally smoothen out over time. Wealth accumulation involves two aspects, consistent addition to the corpus and a continuous compounding of this corpus. Compounding is interrupted if we constantly tinker with the process. Lock-ins help ensure that we are constrained from doing so.
Warren Buffett has also alluded to the virtues of long-term investing when he quipped, I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. The Law of the Farm states that we cannot sow something today and reap it tomorrow. A realization that all good things take time is the first step towards wealth creation.
