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Article | Sip - Jan 01, 1970 | 05:30 AM

Many reading this might have already received a letter from their Human Resource team requesting proofs for tax savings. With FY2016 coming to a close, accountants will scurry to get their books in order. This is when a majority of folks realise they haven’t made enough investments to claim for tax exemptions.

This, by no means, is an aberration. Haphazard tax planning is the norm. It is a symptom of a much greater malady that plagues everyone from the salaried class to business owners, the lack of financial planning. People mention financial planning and tax planning in the same breath and the terms are often used interchangeably. Whereas in reality, tax planning is a subset of financial planning. We are so obsessed with minimising tax liabilities that in the eleventh-hour panic, we often invest in the first product that comes our way. The decision which might help save taxes in the interim but may not be feasible in the long run.

This phenomenon is particularly visible during the last quarter of the financial year. One product which garners attention is equity-linked savings scheme (ELSS). Analysing data from AMFI shows that the average AUM of ELSS funds increased by 6.61% to Rs 53,866 crores in the month of

So what makes ELSS such an attractive investment opportunity and what are the pitfalls an investor should avoid?

For starters, ELSS is a mutual fund scheme where over 65% of the asset allocation is in equity instruments which have tax benefits under section 80C, subject to eligibility. It is not sector specific and focus is usually on macroeconomic factors, economic changes & trends and also seeks to identify companies with high profitability and scalability supported by sustainable competitive advantage. ELSS is a potential option because of the tax benefits it provides. Any investments in an ELSS mutual fund are tax deductible under I-T Section 80C for a maximum of Rs 1.5 lakh, subject to eligibility. It is the driving force for people who haven’t utilized 80C to its hilt.

Here’s Why You Should Invest In Equity Mutual Funds

However, ELSS can be a double-edged sword due to the lock-in clause. All ELSS funds have a three year lock-in period during which an investor will be unable to withdraw the invested amount. Also, in the case of SIPs, each instalment needs to complete three years to be eligible for redemption. ELSS should be looked as an investment first and the tax benefits should be incidental. A whimsical investor should consult their financial advisors before investing in an ELSS funds.

The lock-in period could also be helpful for investors. Usually, investors are tempted to withdraw their investment at the first sight of potential returns. Having a mandatory lock-in period will enforce fiscal discipline. Another advantage is that ELSS by nature is an equity fund and equity funds have a potential for capital growth in the long term. Also, equity funds held long-term (over a year) is completely tax-free at the hands of the investor.

As an investment option, there is no particular age to get started in an ELSS. Apart from lazy investors, the fund is suitable for investors who are not particularly risk averse. However, investors should consult their financial advisors before investing. Since it is an equity related fund, there will be volatility. However, these are moderately high risks, something compounding and a growing economy may help offset. ELSS are also actively managed, so while picking a fund, checking the track record of the fund manager may allay any fears.

For the individual looking to foray into mutual funds and equities, ELSS can be a good starting point. One such ELSS fund is Aditya Birla Sunlife Tax Relief ’96 (an open ended equity linked savings schemes (ELSS) with a lock of 3 years. Launched in 1996, it offers both a growth and a dividend option.

This may be a potential option for those investors with a moderately high to high risk appetite and appealing for a young investor seeking to create wealth over time while saving a bit on tax.


Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully


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  • Indian Mutual Funds

    Indian Mutual Funds have currentlyinvested about 1.35 crore (13.5 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes. (March 2017. Source: AMFI)

  • AAUM

    Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the month of March 2017 stood at ₹19.26 lakh crore. (Apr 2017. Source: AMFI)

  • Equity-oriented Schemes

    Equity-oriented schemes account for around 32.8% of the industry's assets. (March 2017. Source: AMFI) Equity-oriented schemes derive 85% of their assets from individual investors. (March 2017. Source: AMFI)

  • HNI Investors

    HNI investors account for 20.98% of investments for a period of 12-24 months. (Source: AMFI)

  • Benefit of Index Funds

    Index funds usually have much lower operating expenses over actively managed funds.

  • What is Net Assets?

    This figure represents the fund's total asset base, net of fees and expenses.