Is ELSS a convenient option for retirement seekers to save taxes and adequate funds?

There are various financial products and pension schemes like PPF (public provident fund), tax saving FDs (fixed deposits), NPS (national pension system), EPF (employee provident fund), etc. For ages, investors have invested in such traditional options to secure their retirement days. These options are usually low risk in nature and provide steady returns. However, with the rise in awareness about market products, today’s generation, particularly the millennials and Gen Z have started investing in market-linked products like ELSS (equity-linked savings scheme) to accumulate adequate retirement corpus.

What is an ELSS (equity-linked savings scheme)?

ELSS is a kind of mutual fund investment scheme that invests in equities and equity-linked products. Such funds offer you the opportunity to grow your investible over the long term. ELSS is even considered a tax saving fund owing to the provision of tax benefits of up to Rs 1.50 lakh as per Section 80 C. Apart from this, ELSS even provides a lock-in of only three years, which is looked upon as the shortest lock-in among all tax-saving products. For instance, PPF has a lock-in of 15 years, tax-saving FDs have a lock-in of 5 years, NPS has a lock-in until retirement, etc. So, ELSS has the shortest lock-in, meaning you have complete freedom to redeem your assets and meet your goals as and when they approach.  

Also, when it comes to returns, ELSS has the potential to offer higher returns than traditional tax-saving instruments like PPF, FD, EPF, etc. This is because ELSS returns are associated directly with the stock market. So, this may get you wondering if ELSS is risky. The answer to this is yes, ELSS come with some risk percentage as they invest a considerable portion of your investible in equities. However, to meet the risk, you can consider investing in ELSS funds for a long period. This strategy can enable you to lower your credit risk and even endow you with the chance of increasing your returns. As retirement is a long-term financial goal, ELSS is a prudent financial product you must consider adding to your investment portfolio for inflation-beating returns. 

Key features of investing in ELSS – 

∙       A minimum of 80 per cent of the investments in ELSS are invested in equity instruments. 

∙       Minimum limit to invest in ELSS is Rs 500.

∙       You can avail a tax deduction of up to Rs 1.50 lakh as per Section 80 C. 

∙       Lock-in period to invest in ELSS is three years.

∙       You can select either dividend or growth option when investing in ELSS.

∙       High returns are possible but note that returns are not assured owing to its market-linked nature.

Why must you consider ELSS for retirement corpus generation?

  • Easy investment

The procedure to invest in ELSS is remarkably simple and easy. Once you have selected the preferred ELSS scheme, you just need to use an online SIP calculator to figure out the monthly contribution you must make in the chosen ELSS plan to accumulate the desired corpus over the estimated time period. Once you have figured out the monthly contribution, you can begin investing periodically in the ELSS scheme through the SIP mode. Note that the SIP mode offers you benefits like rupee cost averaging, and compounding effect, and helps you imbibe financial discipline. 

  • Diversification

Markets fluctuate and you as a retail investor may not want to risk losing out on your investments during an economic downturn. However, as the ELSS scheme invests in a variety of sectors and stocks, they may offer excellent diversification in a cost-efficient and simple manner. 

  • Professional management

ELSS mutual funds are managed by experts called fund managers. They are professionals with substantial experience in the stock market and can control funds based on extensive market research. The basic agenda of fund managers is to offer inflation-beating returns on investment. So, when you begin your ELSS investment, you do not require being concerned about tracking the market constantly on a daily basis. 

Ending note

Retirement planning is an important process where you must figure out ways to attain them in the best way possible. For this, you must ensure to make investments in the correct avenues to increase your money. As ELSS can offer dual benefits i.e., provide tax savings and offer inflation-beating returns over the long term, it is considered the best instrument to generate and keep your retirement corpus.

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