The popularity of Equity Linked Saving Scheme (ELSS) has reached new heights in recent years. All thanks to awareness about mutual funds and benefits related to it, as well as the dual benefits that ELSS funds offer- tax saving and long term wealth creation.
However, like many other investment options, ELSS funds are also exposed to a certain amount of risk. This sometimes makes the potential customers ponder over the safeness of the money invested in such funds.Before we begin delving deeper into whether ELSS funds are safe instruments or not, let us understand a bit more about these funds.
What are ELSS Funds?
Equity Linked Saving Scheme (ELSS) is a type of mutual fund, which helps in saving taxes under section 80C of the Income Tax Act 1961. This scheme allows you to deduct the amount of your investment from your total income and thus, your taxable income is reduced.
Investors can choose between growth and dividend investment-options. The growth schemes will provide investors with a large sum of money at the end of the lock-in period. On the other hand, the investors will get a regular dividend income by choosing the dividend scheme. Investment can be made through Systematic Investment Plans as well.
ELSS schemes include a lock-in period of three years. The funds can be redeemed or switched after the lock-in period. Investment up to Rs.1.5 lakhs made in a financial year is eligible for a tax deduction. ELSS can seem similar to other mutual funds; however, the lock-in period of three years makes ELSS different.
Is ELSS a Suitable Option for You?
Since ELSS funds are a type of equity fund, they are governed by the same market risks. Consequently, these funds pose a risk to the investors who are seeking short term gains, as it is subject to market fluctuations. Hence ELSS mutual funds are suitable for individuals who want to save taxes while enjoying superior wealth creation in the long run and are in no hurry to redeem their investments. For more risk averse investors, other tax saving options that also offer wealth creation prospects, albeit lower returns ,such as PPF, would be more suitable.
Benefits of ELSS funds
The key advantage of ELSS is the tax benefit. However, there are few other perks of investing in them, which are as follows:
- Higher returns: Traditional investment options offer an average of 6 to 8% returns, while mutual funds usually offer up to 10 to 12% returns in the long run.
- Better post-tax returns: ELSS provides better post-tax returns than other mutual funds. The reasons behind this better post-tax returns are the returns up to Rs. 1 lakh being non-taxable and the returns above Rs.1 lakh being taxable at only 10%.
- Better lock-in period: The lock-in period of ELSS is considered long. However, in comparison to other tax-saving investment instruments, ELSS has the shortest tenure. Other tax saving schemes can have a lock-in period between 6 to 15 years, whereas the lock-in period of ELSS is only three years.
Is Axis ELSS Fund Good?
When it comes to best performing ELSS mutual funds, one fund that has performed consistently well when comes as compared with peers is Axis ELSS fund.
Launched by Axis AMC on 29th December 2009, Axis Long term equity fund as a diversified equity fund, invest across large cap and selective midcap stocks. Being an ELSS fund, the scheme comes with a lock-in period of just 3 years, offering highest liquidity among other tax savings options. Apart from tax saving, being an equity scheme, investors can also utilize Axis Long Term Equity Fund (Growth) for their long term goals like retirement, saving for their child’s education etc. The fund has been offering inflation beating returns in the past and is a hugely popular choice amongst investors.
How has Axis ELSS Fund Performed Over the Years?
Axis Long Term Equity Fund has maintained a good record of growth since its launch in 2009. The scheme has a 14.69% return rate in the year 2019. Suppose one would have invested Rs. 20000 on 1st January 2019, the invested money would have become Rs. 22938 by 1st January 2020. The Net asset value of the Axis Long Term Equity Fund ( Growth) as on 15th January 2020 is 49.9276. With this record of constant return, the bank has been able to earn customers’ loyalty. Needless to say this is one of the most opted for schemes from Axis mutual funds online.
Is it Safe for the Long Run ?
While many schemes from Axis Mutual fund in India, have performed well, this particular scheme has been one of investors’ favourites. That being said, ELSS funds are not completely free from risk and investors need to exercise caution before investing in them. One of the best ways to mitigate risk of short term volatility is to hold the investments longer. A long-run investment ensures that the equity portfolio gets enough time to accumulate profit. The risk of ups and downs in the equity market is an influential factor. However, a mutual fund can earn larger profits during the ups in comparison to the traditional investment plans. The less return during the low thus can get balanced by the capital earned during the ups in the equity market. The impressive performance score of the Axis Long Term Equity Fund makes the scheme trustworthy to investors. Moreover, the capital under the scheme is invested in companies that have a steady growth rate and sustainable business module. But before choosing this scheme for your tax saving and wealth creation objectives, make sure you also compare the fund with peers and conduct due diligence. Only if the fund objectives align with your own, should you make a decision.
The article is just a commentary on the performance of Axis ELSS fund and by no means a recommendation. Please practice due diligence and ensure the fund matches your financial objectives before investing. Mutual funds are subject to market risks.