NEW DELHI: Many investors are weighing their options in the Equity-Linked Saving Schemes (ELSS), thanks to the election year, highly volatile market, the devastating impact of IL&FS defaults and the average performance of markets last year.
ELSS are funds that invest their assets in stocks, with a lock-in period of three years. On average, these funds have delivered returns of 12-15 per cent over long-term (3-5 years), which is low on risk and high on returns, compared to other tax instruments. One can invest up to Rs 1.5 lakh in the ELSS, on which one can claim tax deduction under Section 80C of Income Tax Act.
Some investors have been wary of the negative returns from some ELSS funds yielded in last one year and also the 10 per cent tax on long-term capital gains of over Rs 1 lakh in a financial year.
Tax experts brush aside these concerns.
“ELSS still remains an attractive option for tax-saving, compared to other tax saving instruments. On average, these funds have delivered returns of 13-15 per cent by three-five years, which is still the best among all other options. You cannot just see one-year returns (ELSS schemes give),” said Rajesh Malhotra, a personal finance expert with Axis Bank.
According to AMFI (Association of Mutual Funds in India) data, the Q4 of FY 2017-18 witnessed ELSS inflows worth Rs 9,881 crore, the highest among all the four quarters in the financial year.
However, several advisors agree that while ELSS still remains attractive, investors must not put all eggs in one basket. They should judiciously distribute it over other schemes as well; one should ideally have one’s investments spread among two-three schemes for risk diversification, they say.
“While ELSS has delivered better returns, risks are higher. Then there is National Pension Scheme and Public Provident Fund. A good tax-saving option is to wisely look at your portfolio, so that you have a good mix of long-term, short-term and post-retirement portfolio,” said Ratnesh Jain, an Ahmedabad-based personal tax expert.