Tax planning plays a pivotal role in the entire finance planning process. Among the gamut of products available, ELSS provides tax advantage in addition to Return on Investment (ROI). The article takes a closer look at the scheme.

Equity-Linked Saving Scheme (ELSS) is one of the most attractive tax-saving instruments in India as it offers high returns and multiple tax benefits with the advantage of a low lock-in period. Traditional means of tax saving investments are mostly just equipped to commensurate the burden of inflation and build wealth in the long term. Investments in equities, on the contrary, have shown better results and have the potential to grow in the long run, so investing in equities can be an ideal approach to adjust inflation and provide an opportunity for capital appreciation. ELSS is a diversified equity mutual fund scheme with high-risk investment propositions and is ideally meant for high-risk profile investors. The investment objective of this scheme is to generate long-term capital growth from a diversified and actively managed portfolio of equity and equity-related securities.

These schemes are growth-oriented and invest considerably in equities as they need to invest 80% or more of their corpus in equities and equity-related instruments. Further they come with a three-year lock-in period. Actually, the lock-in period can be assumed as a good investment strategy as it avoids short-term volatilities of stock market and the fund manager has the flexibility to choose those companies in the portfolio with longer-term horizon and sound fundamentals. Any investor who makes his investment in this scheme is free to redeem his holdings at a price based on the Net Asset Value (NAV) once this lock-in period expires. However, markets are unpredictable and volatile. With a view to minimize the effect of short-term movements and to creating long-term wealth, it is better to give sufficient time for investment to average out of the volatility. Many ELSS offer a choice of both dividend and growth options.

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