ELLS is one of the most prudent ways to invest in any type of equity securities and one must keep investing regularly so that volatility can be smoothened over a period of time, Harish Menon, Co-founder of House of Alpha told ETMarkets. ELSS as a scheme is dominated by equity securities, he added.
Under the current market conditions also the same strategy will work well, he further said.
The markets are likely to remain volatile in the coming months as they will assess the US Federal Reserve and the Reserve Bank of India’s (RBI) actions and try to forecast the future policy path, Alekh Yadav, Head of Investment Products at Sanctum Wealth said.
“Given the interest rate hikes and geo-political tensions, we believe this wouldn’t be an easy market for investors,” Yadav said.
While cautioning investors against the challenges ahead, he also advised investing in ELSS schemes.
Since ELSS is an equity fund, systematic investment plans (SIPs) would work better to smoothen out the volatility and get benefits of rupee cost averaging in case the market sees some correction, Menon said.Since there is a 3-year lock-in when one invests in ELSS, the redemption pressures from such funds are usually lower than other actively-managed equity funds, he said while listing out the advantages of ELSS.
“As a result, the fund manager can take a larger exposure to equities in the portfolio by keeping a smaller cash component for redemption purposes. That way, ELSS can have a more aggressive equity exposure in many cases,” the House of Alpha Co-founder further said.
However, there is a caveat, too. Menon said that investors must not select ELSS schemes based on their recent portfolio performance, like any other equity fund.
“A fund which has been able to navigate through more market cycles over a period of time with lesser drawdowns in market fall should be the preferred fund for investment,” he added.
“There is never a right time to start investing in equities and for tax saving purposes under Section 80C of Income Tax Act, ELSS is a good option for long-term wealth creation,” Menon said.
Echoing similar sentiments, Yadav of Sanctum Wealth said, “If the 80C limit has not been fully utilised, investors could use ELSS (tax saving funds) to maximise their tax savings. Tax planning well in advance by investing through SIPs in ELSS can remove the element of timing.”
Top 4 ELSS schemes:
1) Quant Tax Plan Direct-Growth | Fund Size: Rs 2,779.06 Crore | Expense Ratio 0.57% | 3Y Return: 48.44%
2) Bandhan Tax Advantage (ELSS) Direct Plan-Growth | Fund Size: Rs 4,024.37 Crore | Expense Ratio 0.75% | 3Y Return: 32.57%
3) Parag Parikh Tax Saver Fund Direct-Growth | Fund Size: Rs 1,147.11 Crore | Expense Ratio 0.80% | 3Y Return: 31.01%
4) PGIM India ELSS Tax Saver Fund Direct-Growth | Fund Size: Rs 451.02 Crore | Expense Ratio 1.00% | 3Y Return: 28.99%
IMAGE (Source: Economictimes)
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