How ELSS will help you to achieve your long-term financial goals?

Published On: 15-Mar-2021
Equity Linked Savings Scheme (ELSS) is a specific category under the broad category of equity mutual funds, which is eligible to provide a deduction from the total income of up to Rs. 1.50 lakhs in a financial year as per Section 80C of the Income Tax Act, 1961. Investment in such funds is only one amongst the bouquet of tax-saving investment options. However, considering the various inherent benefits of ELSS, including lowest lock-in period (three years), and the potential of wealth creation, it is one of the preferred investment options for availing tax deduction. 
This is also evident from the fact that as on 31 January 2021, ELSS funds have an Assets Under Management (AUM) of Rs. 1,19,814 crores (Source – Association of Mutual Funds in India, AMFI).
Since ELSS investments provide market-linked returns, the investors may expect better returns over the long term, since equities are known to perform better over the long-term. Further, the lock-in period allows the fund manager to reasonably predict the fund redemptions and hence, plan for long term investments in a better manner. 
ELSS, or tax saving mutual funds schemes, enable the investors to continue with the investments, even after the 3-year lock-in period has completed. As such, the investors can continue to stay on the path of wealth creation over the long term by staying invested in ELSS funds. This flexibility also allows the investors to align their tax planning with their financial goals as the time horizon of ELSS investments can be considered for any period of more than three years.
The investors can also register a Systematic Investment Plan (SIP) for making investments in ELSS, which allows them to invest consistently as well as stagger the tax-saving investments over a more extended period. Automating the tax-saving investments through SIP helps the investors to avoid the emotional bias and simplify the process to avail the maximum tax benefit by spreading the investments over the year in smaller monthly instalments.
For example, Rs. 12,500 invested in ELSS per month will allow you to avail total tax deduction of Rs. 1.50 lakh under Section 80C, translating into tax savings of up to
Rs. 45,000 (plus applicable cess and surcharge). The tax savings will depend upon the tax rate as applicable to the investor.
ELSS funds, as a category average, have generated 9.60% returns for the investors over the last 3 years (as on 23 rd February 2021) and taking similar returns as the assumed returns for a longer investment period, the investment corpus of ELSS alone might have a value of Rs. 91 lakhs at the end of 20 years, as against the total amount invested of Rs. 30 lakhs. The amount of tax saved can further add to the investment returns to the tune of Rs. 9 lakhs. 
The lock-in period might be a restrictive clause for the investors, but it also acts as a blessing in disguise, as it restricts the investors to redeem their investments. Hence, investors can resist the temptation to redeem their investments over short term volatility. This is indeed a critical factor towards a wealthy and prosperous financial future. As such, the investors to align their tax planning and financial planning together with a single investment in ELSS and achieve their long-term financial goals. 
Note: The tax provisions, as mentioned in the article, are updated as per the Union Budget 2021. However, the tax benefits will be as per the prevailing tax laws as on the date of the respective SIP instalments.