ELSS a preferred tax saving investment option in recent times: Report

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Updated: March 31, 2021 11:44 AM

In ELSS investors have the flexibility to invest either through SIP or by making lump sum investments. Experts say a low lock-in period, capital appreciation potential and tax benefits have made ELSS one of the preferred tax saving investment options in recent times.

Industrials, goods and services, and cyclical sectors like steel, logistics, cement, construction, commercial realty are likely to be marginally better off and may see a recovery in the first half from FY20 levels. (Representational Image)

People mostly look for tax benefits while making any investment and ELSS is one of the most popular options in the mutual fund category that offers tax benefits.

For investments made in ELSS, a deduction up to Rs 1.5 lakh is allowed under Section 80C. These equity-linked saving schemes come with a lock-in period of 3 years, which is lesser when compared to other tax-saving instruments. Being a diversified equity mutual fund it also serves the purpose of long term capital growth along with tax-saving benefits.

In ELSS investors have the flexibility to invest either through SIP or by making lump sum investments. Experts say a low lock-in period, capital appreciation potential and tax benefits have made ELSS one of the preferred tax saving investment options in recent times.

Harsh Jain, Co-founder and COO, Groww, says, “ELSS is one of the most popular equity mutual funds categories. From January 2020 till March 2021, almost 20 per cent of the investors on Groww chose ELSS. Of the total assets under management for equity schemes, 17 per cent was allocated to ELSS.”

Here are some other observations with regards to trends in ELSS investments on Groww;

Preferred mode of investment: 15 per cent of investors in the age group of 25-40 invested in ELSS funds, and while they showed a slight preference for lumpsum investments (41 per cent), a sizable percentage also chose to invest in ELSS via the SIP route (38 per cent). On the contrary, as high as 54 per cent of the investors above the age of 40 chose lump sum as their preferred mode to invest in ELSS.

Industry experts say, the reasons behind the investment pattern shown by investors in the 25-40 year age group, could be due to increased awareness around ELSS as a product and benefits of investing in equity funds via SIP, along with greater financial discipline. Data from Groww shows that the average amount invested by an ELSS investor on the platform was Rs 43,000.

Month on month trend: Month on month data from Groww states, that the interest in ELSS peaks in the first quarter of the year. In January, February and March, ELSS transactions are 41.6 per cent more than the transactions in ELSS happening around the year. The reason behind the surge in ELSS investments in the first quarter of the year could be the tax-saving proof submission deadlines that organisations impose, the tax-saving deadline being March 31.

Harsh says, “While lump sum is the preferred mode to invest, investors are also seen opting for SIP route to invest in ELSS funds especially in the 25-40 years age group.” He further adds, “It is important to note that ELSS is like any other equity fund and investing periodically helps one cultivate financial discipline and reap benefits of rupee cost averaging. As awareness around ELSS as a product increases, more investors invest in ELSS mutual funds methodically as opposed to making last-minute investments.”

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