With markets crashing sharply amid the Russia-Ukraine crisis, several investors are contemplating whether to make the last-minute investments in ELSS in order to save taxes for the financial year, or to stay away from markets altogether and opt for safer tax-saving investment options like PPF, NSC etc. Investments in PPF and ELSS or tax saving mutual funds qualify for Section 80C income tax deductions.
Experts are of the opinion that even if PPF, NSC and others are great tax-saving investments, but buying ELSS when the markets are low can give you an extra edge. “Investing in ELSS does not mean that you’re saving taxes only. It’s an avenue to meet your financial goals. As financial goals cannot be met by chance, it has to be planned accordingly,” said Arijit Sen, SEBI Registered Investment Adviser and co-founder of merrymind.in.
For example, if you look at the top-performing ELSS funds, then you will realise that you get far better deals if you buy now. For example, the NAV for the Mirae Asset Tax Saver funds stood at ₹35.88 when the market peaked in October last year, the same stands at ₹32 now. Similarly, for Axis long term equity, the NAV was at ₹87, when the market peaked, it stands at ₹71 right now.
However, the expert suggested that it is always better to spread out your tax investment throughout the year. Sen added, “Market movements are beyond our control. Lump sum investments tend to fail to sail the tides of market volatility. Spreading your investments across 12 months will have the potential to mitigate market volatility to a great extent over time.”
ELSS funds are typically flexi-cap funds. That means they invest in companies of all sizes and across sectors and therefore have a diversified portfolio. Also, it gives the flexibility to change the portfolio composition as per the market conditions and hence they are better equipped to take advantage of emerging opportunities.
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Investing in ELSS via SIP has three main advantages over lumpsum. Apart from saving taxes, wealth creation, since the investment is spread across 12 months, it does not pinch the investor’s pocket harshly.
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