ELSS: Criminal injustice

Despite being the best tax-saving option, investors give it a shrug

In the world of tax-saving investments, options abound for retail investors. From the most popular bank FDs and Public Provident Fund to the most mis-sold Unit Linked Insurance Plans (ULIPs), there is a wide variety of instruments with different lock-in periods, return potential and risk involved.

Yet, when it comes to utility and convenience, one option reigns supreme – the Equity Linked Savings Scheme (ELSS), also known as tax-saver funds. That’s because ELSS funds give you triple benefits – wealth creation plus tax savings, along with the shortest lockin period of three years. What’s more, their recent performance also lives up to this reputation.

Going strong

This year started on a damp note, with the Adani-Hindenburg saga and talks of an impending recession going around in many developed parts of the world, putting pressure on the equity markets.

But the last couple of months have displayed a sharp rebound. So have ELSS funds. This year, these funds, on average, have been able to generate a good alpha over the benchmark – BSE 500 index. And this is not just because of a few funds orchestrating this charge. As many as 31 out of the 36 funds in the category have beaten the benchmark in the first half of this year. Another point that comes out of this is that ELSS is among those fund categories where active management is still alive and kicking.

Further, since the rally has been across market segments, these funds have also benefitted from their exposure to mid-cap and small-cap stocks. As a result, one-year returns of the ELSS category currently stand at 26 per cent as against 23.5 per cent delivered by large-cap funds.