Equity Linked Saving Schemes (ELSS).
However, rarely do they dedicate enough time to understand the right tax-planning strategies and how they can be tied in with their wealth creation and overall financial planning, said experts, who believe that investing in ELSS Funds allows investors to not save taxes through deductions but also helps them beat inflation.
In a conversation with ET Digital on ‘
Tax Planning 101: How to Invest in the Right ELSS Fund to Save Tax & Grow Wealth?’, Nilesh Shetty, Portfolio Manager at Quantum Advisors, and Harshvardhan Roongta, Principal Financial Planner at Roongta Securities, spoke about the importance of ELSS and why investors should consider investing in ELSS Funds as part of their tax planning and long-term investment strategy.
How to Invest in the Right ELSS Fund to Save Tax & Grow Wealth?
Tax planning is an important exercise carried out towards the end of the financial year, with most individuals spending a considerable amount of time choosing the right tax-saving product, such as Equity Linked Saving Scheme (ELSS). However, rarely do they dedicate enough time understanding the right tax-planning strategies and how it can be tied in with their wealth creation and overall financial planning.
“The end-objective of trying to save is to generate a surplus over inflation, and most of the other instruments in 80C are fixed income products. By and large, because of the tax deduction, you might just be able to save as much as inflation and be in line with inflation. But to try and generate a surplus above that, the only asset class that is available is equity. So, in that sense, it is a big boon that equity was allowed to be part of the
ELSS,” said Shetty, Portfolio Manager at Quantum Advisors.
By virtue of the fact that you can not only generate higher returns by investing in ELSS compared to all the other asset classes in the 80C bucket, but also get a tax deduction, makes investing in ELSS ‘a no-brainer’, Shetty added.
“What is important is when you are investing your money, you want the purchasing power of that money to be intact, which means that if I can buy something with Rs 100 today, after one year, I should be able to buy the same value despite the costs going up,” said Roongta, as he elaborated on the need to invest in an asset class that beats inflation.
ELSS, Roongta added, is therefore the best way to marry investors’ need to save as much tax as possible, while saving for the future.
Speaking about who should consider investing in ELSS funds, Roongta called it “…a product meant for everybody,” as all individuals have long-term saving requirements and the need to beat inflation, and the ELSS product serves this need.
“We don’t have unlimited amounts of money that I can invest part of it to save tax and use the other set of the money for my investment goals. So, you will need to marry both. Keep in mind that your goals are important and choose products that help you save along with it,” Roongta said.
It is also important to invest depending on each individual’s risk appetite, since ELSS is an equity investment and hence, can be volatile, said the experts.
“Equity as an asset class is not an investment for one year or two years, it’s a very volatile asset class. It is linked to what happens in the underlying market. So if the markets are down, your investments will be down. But what happens over a long period of time is that the probability of incurring a loss reduces. So my advice to investors is to stick to a long-term asset allocation plan and not look at 1-2 year movements,” Shetty said.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.