• Equity Linked Savings Schemes
  • ELSS Funds
  • CRISIL Fund Insights
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January 25, 2017

ELSS: Harness equity investments and save tax

Equity linked savings schemes (ELSS) have caught investors’ fancy over the past decade. Their popularity is rooted in tax benefits (if held for three years) and the opportunity to harness potential growth in equity. The category’s assets under management increased from around Rs 8,500 crore 10 years ago to over Rs 50,000 crore in December 2016.

ELSS funds (represented by the CRISIL – AMFI ELSS Fund Performance index) returned 25% p.a., on average, in the three-year rolling period since June 2001 against 17% by equity bellwethers Nifty 50 and S&P BSE Sensex over the same period. However, investors need to increase their investmenthorizon to derive optimum benefit. Since ELSS invests in equity, it is exposed to risks associated with the asset class especially in a shorter time horizon of three years. This is validated by the minimum return of -11% given by the category over this period, which spelt capital losses.