ELSS funds offer attractive returns, but can be volatile

The March 31 deadline for making tax-saving investments is approaching.

- Sudipta Mitu

One tax-saving product that investors, especially younger ones with long investment horizons, should opt for is equity linked savings schemes (ELSS), popularly known as tax saver funds.

These are equity funds that also enable you to get tax deduction under Section 80C (maximum limit Rs. 1.5 lakh). Since these are equity-oriented schemes, they carry the potential to offer high returns. Over the past 10 years, the direct plans of these funds have given a category average return of 15.2 per cent. The best performing fund has given 22.1 per cent. Even the worst performer has given 12.5 per cent. No fixed-income product can give you such returns.

Another advantage of ELSS is that these funds come with a lock-in of only three years—the shortest among all tax saver instruments.

Investors must, however, be prepared for volatility in these equity-oriented products. In 2018, for instance, they had given a category average return of -5.1 per cent. That year the worst-performing fund was down -19.9 per cent. Even in 2022, the category gave a tepid return of 3.2 per cent.