Equity Linked Savings Scheme or ELSS Mutual Fund
Superior returns in the past, lowest lock in period amid falling interest rates a big pull
The popularity of Equity Linked Savings Scheme or ELSS mutual fund industry’s tax-saving product -is soaring among investors. In the first eight months of the current financial year, this product category has mobilised `4,121 crore as compared to `2,367 crore during the same period in the previous year.
Financial advisors said superior returns in the past, lowest lock in period and falling interest rates are prompting investors to look at ELSS.
There is a generational shift, where inflows from retail investors in equity mutual funds are rising. Since many of them, look to save tax as well, a chunk of these flows come into tax saving schemes.
These schemes delivered 17% and 16% over a 5and 10-year period respectively , which is higher than fixed income investments in the tax saving category .
Investors can invest up to `1.5 lakh in a financial year in tax savings schemes to get tax benefits under Section 80C. Investments in ELSS are locked in for a period of three years and investors can choose to either make lump sum investments, or use the systematic investment plan (SIP) route. Public Provident Fund (PPF) has a tenure of 15 years.
Distributors said falling interest rates in traditional tax saving products and fixed income products has also played a role in increasing investor interest in ELSS.
Interest rates on small savings scheme which qualify for Section 80C benefit are coming down. The fact that since Hindu Undivided Family (HUF) cannot open fresh PPF accounts and have to compulsorily withdraw money after completion of 15 years, this money is flowing into ELSS schemes.
Over the last financial year, interest rates on small savings which qualify for tax savings under Section 80C fell sharply . Public provident fund (PPF) rates were last reduced from 8.7% to 8.1%, while National Savings Certificate (NSC -5 year) were slashed to 8.1% f ro m 8 . 5 % . M o s t re c e n t ly, E m p l oye e P rov i d e n t F u n d Organisation (EPFO) rates were reduced from 8.8% to 8.65%.