The financial year has already started with many investors beginning to select investments, particularly to save on taxes.
Anup Bansal, Chief Investment Officer, Scripbox, points out, “Typically, investors are eligible to claim tax deductions under section 80C for up to Rs 1.5 lakh each financial year. The tax-saving investment options also include ELSS or Equity Linked Savings Schemes. Given the market fluctuations in recent times, it has created a question of whether or not to invest in ELSS as the new financial year begins.”
ELSS or Equity Linked Savings Schemes invests in stocks, and thus by default they are directly correlated with any changes in the market. ELSS is not backed by the government like other tax-saving instruments (insurance, NPS, etc.). However, Bansal says, “it certainly provides a better return–the annualized ELSS return for the last 5 years is 11.5 per cent and the last 3 years is 14.8 per cent. Compared to other tax-saving instruments such as NPS, ELSS has a lock-in of only 3 years so one can take out the profits and reinvest to save more once the lock-in is over.”
Bansal further adds, “ELSS certainly has an upper hand in higher return and short time span, but ideally, investors should invest only as much as their risk tolerance level allows.”
Note that being an equity investment, ELSS is likely to fluctuate between the green and red lines, but experts say the ultimate goal should be to stay invested for the long term and avoid market noises. If you are certain of the pros and cons, ELSS can be a good investing option with the benefit of tax savings.
According to experts, investing at the beginning of the financial year would provide an entire year for the fund to grow and compound. “ELSS is not just a tool for saving on taxes, but also helps in creating wealth over time. The prerequisite is to stay invested and be patient and consistent with your goals and portfolio,” adds Bansal.