What is ELSS and how good is it as an investment instrument in 2020? Find out here

What is ELSS or Equity Linked Savings Scheme and how good it is as an investment instrument in 2020 is the question that Zee Business guest Maneesh Taneja, Client Advisory Head at Paisabazaar.com has explained it all for investors:

ELSS is a diversified equity fund. Most part of the investment is into equities in this type of instrument. The instrument offers tax rebate under Section 80C of the Income Tax Act. The scheme has a three-year lock-in period. The chances of risks are minimised because of a diversified portfolio. The scheme gives you options for investment via SIP mode.

The fund has not done too well in the last few years. Since the ELSS fund has around 95-100% share in equities, the returns from these funds are proportional. In the last one year, ELSS has given returns of 2.18%. In the last 3, 5 and 7 years, the returns have been over 11%.  

According to the data from Association of Mutual Funds in India (AMFI):
-- ELSS fund category has witnessed a dip in investments
-- Till January 2020, investments up to Rs 931 cr have been made
-- In January 2019, investments of Rs 1,244 was made in this instrument
-- In January 2018, the investments in ELSS schemes was Rs 1,986 cr
-- ELSS faired badly in comparison to equity mutual fund

Is ELSS right in 2020?
-- Investment in ELSS schemes is usually greater than Rs 1.5 lakh
-- Almost 15% investors consider this instrument for equity allocation
-- ELSS recognition as a multi-asset fund has increased
-- The investors do not consider this as just another tax saving instrument

So if you are thinking of savings and good returns, this may be the right option, Taneja says. You can diversify your portfolio through investments in ELSS.

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The new tax system proposed in Budget 2020 may dampen the interest in ELSS schemes. The new tax system will also take away tax incentives from the investors.