Equity-Linked Savings Scheme or ELSS funds are widely known for the tax benefits they over. That is why, majority investors wake up to the fact of under-investing in this instrument towards the end of the financial year, as is amply clear from this chart. It shows the net inflows (+) and net outflows (-) for each month in ELSS funds from April 2022 to November
2024.
(Data sourced from monthly reports released by AMFI)
It is not surprising, therefore, that the potential of ELSS funds to generate wealth over long periods is widely overlooked. Rolling 5-year returns, rolled over a period of 10 years from 15/12/2014 to 16/12/2024, show the performance of top 3 ELSS funds plotted against their benchmark, Nifty 500 (in green). For this period, these funds have generated average returns between 14% and 17%.
(Data sourced from PrimeInvestor.in)
Given that these are equity-oriented funds with a lock-in of 3 years, it only makes sense to stay invested in these funds for as long as possible to get maximum returns. The ideal approach to invest in these funds is identical to the approach followed for investing in any other equity-oriented fund – SIP or lumpsum – throughout the year!
As for tax benefits, there are other ways to avail them, too. Besides, the benefits of investing post tax surplus far outweighs the benefits of spending/investing the tax saved.
