Arnav Pandya
Equity Linked Savings Schemes (ELSS) are one of the options that are present in the list of investments under Section 80C but there is a big difference in the manner in which an individual investor will get an exposure here as compared to all the other instruments present in the list under this section. It is important for the individual to focus their attention on this aspect because with a different kind of exposure there is also a varied risk element that is present here and due to this there should be some efforts to put this in proper perspective. Here are several details that will help individual to make their decision about choosing an ELSS fund for their investment requirement.
Nature of investment
The core of the entire ELSS investment is that this is equity oriented and the entire amount that goes towards this area gets an equity exposure. This means that there is a different kind of risk that is present here as compared to say a Public Provident Fund (PPF) investment or a National Savings Certificate (NSC) because the asset class is not the same. In a debt investment there is usually a higher confidence of the safety of the capital invested especially in case where this is a government backed instrument. On the other hand when it comes to an equity exposure it is the management of the money that is very significant and due to this reason there has to be additional care taken in the investment process.
Exposure
There are other instruments which will provide an equity exposure as well as a Section 80C benefit at the same time to the investor but none is directly compared to an ELSS fund. The other options like the national Pension System or a unit linked insurance policy that invests in equity or a pension fund from a mutual fund also have an exposure to equity. When it comes to the NPS the exposure is however limited to 50 per cent of the total investment so here half of the investment is still in debt. A similar thing is witnessed when one looks at the pension fund being offered by mutual funds as this too is a a balanced option while in case of ULIPS there is also a part that goes toward premium payable for life insurance.
Unique risk
There is a lock in that is present in the ELSS fund which is at 3 years but this might not have much of a meaning for the investor because if the market conditions are very weak at the end of the lock in period then it might not make sense for them to actually take out their investment. This is significant because the money might find itself invested for a long time to come. This is going to be the situation for other alternatives that have some equity exposure too. This kind of position is witnessed because the individual should be looking at equity for the purpose of increasing their wealth and hence not for the purpose of quickly taking their money out. The centre of attention for the investor when they choose an equity route is that they need to build their wealth over a long period of time and one has to ensure that the equity portfolio is structured towards this particular direction. This kind of situation where the investor is forced to keep their money invested for a long period is a different kind of risk that hardly anyone thinks about or considers while they are planning their investment. Ultimately there is a different kind of exposure that is provided here and some smart work will ensure that the investor is able to factor this effectively into their planning.
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ELSS offers tax saving, but do not ignore elevated risks
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