With the union budget only another month, the Association of Mutual Funds in India (AMFI) has lobbled the government to enable debt savings schemes (DLS) to minus taxes. At present, tax-saving mutual funds are equity schemes.

For most of us, ELSS (equity-related savings scheme) has become our first mutual fund investment. The following is the look of how Elss as the category has been done.

Tax or investment savings?

Usually, this scheme gets most of the inflows from December to March from every financial year, because investors find a way to save income tax. “The need to save taxes is the first goal of most individuals who invest in Elss,” said G Pradeepkumar, CEO, Union Mutual Fund. “Returns that are adjusted to healthy risk tend to make investors survive for longer time frames.”

According to value research, 38 Elss schemes collected managed assets worth Rs 1.43 trillion on November 30, 2021. Five of the 38 schemes each managed more than Rs 10,000 Crore. More than three and five years ended December 30, 2021, ELSS respectively gave 18 percent and 16 percent. It is similar to what flexible funds are sent in this time frame.

Tax saving funds invested at least 80 percent of their assets in the instruments related to equity and related EKU. Until Rs 1.5 Lakh qualified to be reduced by section 80C (along with many other investment roads).

However, since September 2020, Elss schemes have seen outflows. Apart from the inflow of RS 1,552 Crore on March 202 and RS 174 Crore on November 2021, this scheme has seen outflows. “Elss is very popular especially among paid individuals. In many sectors, job losses are common and for those who continue their work too, the ability to risk falling due to overall uncertainty around, which might cause the outflow in Elss,” said Pradeepkumar.

Long-term investment, although the key is low

For those who choose to continue to invest, experts say that the Elss scheme is quite popular for long-term investment, although it is locked in three years. What is certain, among tax savings investments, Elss comes with a three-year low key period. “Even though Elss is seen as a tax-saving avenue, over a period of time, investors realize that this scheme can produce wealth for them. This has made many of their investments for the long term,” said Raghav Iyengar, Chief Business Officer, Axis mutual funds.

The fund manager also gets several foot space while investing as an asset is expected to be long to say experts. Suresh Sadagopan, Founder of Stairs 7 Financial Advisors said, “Given the three-year key fund managers can take a slightly longer view.” Even though all Elss have a three-year-deep key ending there. The portfolio of “schema ‘is different from each other. Some are oriented to large hats and some flexible. Therefore comparing one another can be a challenge,” he added.

For example, the funds of the IDFC tax excellence have a 57 percent allocation for large stock and rest within the company’s stocks in mid and small. However, Axis’s long-term equity funds, has allocated 80 percent of the money to large closes. More allocation to mid and small hat stock can cause volatility in the short term, on November 30, 2021.

Get lost in a crowded basket?

Some experts feel that even though it is the only pure equity investment vehicle in the 80C tax reduction basket, Elss still not as popular as several other instruments such as PPF or EPF. Mathpal Pankaj, Founder and Implementing Director, Optima Money Manager said: “Investors see ELSS only if there is a need to invest after they are done by contribution to EPF, PPF, payment of home loans.” He estimates that investors generally invest Rs 50,000 to Rs 60,000 in ELSS and many of them choose a systematic investment plan for the same thing.

“Individuals who have HUF, tend to invest more. In some cases Rs 1.5 lakh per year,” he added. Some investors also recycle investments in ELSS at the end of three years. In other words, they do not invest fresh money; They withdraw from existing Elss and are only reinvested in the same elss or other and claims the 80C benefits of tax reduction.

“PPF enjoys remember-top-mind in many cases. Elss come a long way, usually after NSC and bank tax-saving deposits and life insurance,” observing Anup Bhaiya, Director of Implementing, Financial Services for Honey. “Younger investors, however, are more receptive on the idea of ​​investing in ELSS and getting relevant markets related,” he added.

An Elss has two goals – creation of wealth and tax savings. However, to make it a meaningful component of a person’s portfolio, the RS 1.5 Lakh limit below the 80C section needs to be improved. However, many experts argue that such an increase will not happen soon. “The government will wait for fewer years, to check the taxpayers’ response to the new tax regime. The government wants to eliminate all this reduction and simplify the tax system,” said a rented accountant with a tax consulting company that did not want to be identified.