The Mutual Fund Show: Are Equity-Linked Savings Schemes The Best Way To Save Tax?
ELSS funds offer tax benefits as well as high returns, making them popular for long-term investors, say experts.
As new investors flock to the market, they look for schemes that will help them save taxes as well as reap the benefits of investing. Equity-linked saving scheme funds offer them equity investments with limited tax deduction.
"ELSS funds are equity-oriented, and at least 65% of their portfolio consists of equity-linked securities. So, it's an asset class that's extremely suitable for a long-term investor, who has a horizon of say three years or more," Shalini Sekhri, chief executive officer of Infinity Assest Advisors Pvt., told NDTV Profit.
In addition to tax benefits, it also has potential for high returns making it a "popular choice for long-term investors", she said.
However, one doesn't necessarily need to exit the scheme after three years, said Suresh Sadagopan, managing director and principal officer, Ladder7 Wealth Planners Pvt.
"People tend to think that since this is a three-year lock-in product, at the end of the three years, they will have to take it out and they will have to invest elsewhere. As long as the ELSS is the right product, stay invested."
Sekhri said that though these schemes have tax benefits, the gains are not tax-free. "The gains of up to Rs 1 lakh a year are exempted, and any gains above that would attract a long-term capital gain (tax) rate of 10% with surcharge," she said.
While Sadagopan said that a certain amount of large-cap allocation is required to work as a bedrock for stable portfolio fund, Sekhri suggested opting for actively managed ELSS funds for high returns.
