ELSS Funds: More than tax-saving investments

ELSS Funds: Equity-linked saving schemes (ELSS) funds are widely known as tax-saving investments. As it offers a maximum tax exemption of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961. However, they're more than just a tax-saving tool. To know more about the returns from ELSS Funds, Zee Business spoke to Ravi Singh, Vice President and Head of Research, Share India Securities.

Edited Excerpt from the Interaction:

Q. Apart from tax savings, what are other advantages of ELSS Funds?

A. Apart from being a tax saving scheme, it can give good returns to investors as 80% of the assets are invested in equity or equity-related instruments. The uniqueness of this scheme comes from the fact that it has the lowest lock-in period among all tax-saving schemes. It has only a 3-year lock-in period, but on the other hand, tax-saving-FD has a lock-in period of 5 years, PPF has 15 years, and NSC in the post office has a lock-in of 5 years. Investors can withdraw funds after 3 years in case of an emergency which other schemes lack.

Q. How safe is it to invest in ELSS Funds?

A. Being it an equity-linked scheme, market risks are always there. There is no guarantee of returns in the ELSS scheme like you get guaranteed returns in PPF, tax-saving FD, or NSC. But keep in mind that these funds are managed by highly qualified and experienced fund managers who are well poised to minimize the risks keeping a good risk-return ratio.

Q. What is the ideal duration to hold funds in ELSS?

A. It is completely up to the investors. If the investors do not have financial constraints and macroeconomic factors are favourable, they must stay invested. ELSS could provide good returns if you stay invested for the long term.

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Q. How do ELSS Funds react during a Black Swan event? 

A. Since ELSS is an equity-linked fund, it will perform according to the market sentiments in a situation like Black Swan events. It is always good for investors to diversify their portfolio by investing in precious metals – such as gold and silver. Gold can provide good returns in situations like black swan events, as we have just seen in the Ukraine-Russian war.

Q. What is your outlook for the performance of ELSS Funds?

A. If we look at the past performance of top-10 ELSS funds, we find that these funds have given 29%-37% returns in a 3-year period and 20% to 27% in 5 years. These are remarkable returns when compared with other tax-saving schemes.

(Disclaimer: The views/suggestions/advice expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)