Why ELSS Still Merits A Place

ELSS can create wealth in the long run due to its equity component. But the new tax regime could dent its popularity as investors use ELSS for tax-saving rather than for investment

- NILANJAN DEY

This is the last hurrah for tax savings through a medium that seems to have been dealt a body blow, thanks to the growing acceptance of the new tax regime in which it can play a limited role.

Equity-linked savings schemes (ELSS) is a genre that is clearly relegated to the deep end of our mental pool till the year-end signals for tax savings hit our subconscious mind. Yet, despite the very lonely furrow it is currently ploughing, the latest numbers delivered by ELSS, on average, are quite impressive. Their marginalised status notwithstanding, investors need to do a full-scale rethink on their utility.

The concept of ELSS packs an unputdownable medley-the shortest lock-in period ('shortest' vis-a-vis other competing taxsaving options), the potential of its all-equity portfolio, and the fact that it allows full exit after a mere three years. No other optioncertainly not the administered-rate alternatives offered by the post office -can come anywhere close to the performance logged by the taxsaving funds.

For the record, the returns delivered by the ELSS category over the last three years have been in superlative double digits. That it has been aided by a burgeoning stock market is clearly evident. After all, most tax-saving funds carry diversified portfolios, and their fund managers really do not have to face a great deal of redemption pressure. Indeed, investors need not exit even after the passage of three years (the mandatory period during which their money stays locked-in).

Many, in fact, stay invested for longer durations in order to optimise their gains from advancing equities.