Given the volatility in stock markets for the last couple of months and the budget proposal of disallowing tax deductions in the new tax regime, investors have a rather obvious dilemma of whether or not to continue with ELSS or equity linked savings schemes that in the old or current taxation regime offer tax deduction up to the extent of Rs. 1.5 lakh in a financial year under Section 80C.
To answer this or to make a point to existing or potential investors in the scheme we list out few pointers:
Other than tax saving which is also a facet, investor should tag investment in ELSS to long term goals:
There has been known that over a longer term of say 10-15 years, these funds have given whopping return to the tune of 16% as with Axis Long Term Equity Fund that provided this return in a 10-year tenure. So, if you are just looking to seek tax-benefit from the product and redeem funds from it after the lock-in period of three years, the scheme is just not meant for you.
Also a good option when you seek diversification from your chosen ELSS scheme:
Typically, ELSS also serves to diversify your portfolio as it has the flexibility to invest across large, mid and small caps similar to multi-cap funds. So, depending on the market mood, managers of these scheme switch their portfolio bets to provide investors with higher and stable return.
ELSS with a lock-in period instills discipline that should be there when investing in equity:
With or without tax benefit, the larger objective of ELSS investment is wealth creation over the longer term when fundamentals win over and long term returns from the product are generally stable. So, even if you are among those who would just bet on the product for tax benefits and miss on the possible return in due course, you need to choose ELSS funds that largely bet on purely large-cap funds as these during downturns do not see that sharp correction and also rebound in a tad bit of time.
So, given the different aspects, look at ELSS as an investment beyond tax advantage as it gives you a good start in equity based investment. Nonetheless, if you still are more concerned as in the new tax regime, for lower tax rate you will not be allowed deduction under 80C for investment in ELSS, experts suggest to go for other equity funds that do not come with a lock-in period of 3 years.