Why Tax-Saving Plans Are Still Popular Despite ELSS Rise?

What is ELSS and Why Is It Gaining Traction?

ELSS or Equity Linked Savings Schemes are a type of mutual fund that focuses on investments in equities. Unlike other mutual funds, ELSS funds invest a minimum of 80% in the equity market.

Over the last decade, ELSS has gained significant traction, combining the benefits of wealth creation with tax savings.

Here’s why Indians should explore ELSS despite their traditional tax-saving investment plans.:

Well-suited for Modern Investors

ELSS is an ideal investment choice for millennials and modern investors. It combines various benefits that allow flexibility and disciplined investing.

• Short Lock-in Period
  Equity-linked savings schemes come with a short lock-in period of three years. This offers more flexibility and liquidity for the investors.
  Did you know that traditional tax-saving schemes, such as PPF, come with a lock-in period of 15 years, and National Savings Scheme have a lock-in period of five years? 2

• Option of SIP

Investors can opt for SIP to make investments in ELSS funds. This encourages a disciplined method of investing and is considered a smart option for beginners.

What is SIP? A systematic investment plan is a way of investing in funds that allows you to put small amounts at regular intervals rather than investing in a lump sum. You can start investing with an amount as small as ₹500.

Tax Benefits

Investments made under ELSS funds come with impressive tax benefits.

For Instance

• Investments up to ₹1.5 lakh made towards ELSS funds are exempted from tax benefits under Section 80C of the Income Tax Act.
• Capital gains under ELSS are called Long-Term Capital Gains (LTGC). In a financial year, gains up to ₹1.25 lakh are tax-free.

Professional Fund Management

Rather than analysing the market personally, investments made under ELSS are managed by professional fund managers.

Market Linked Returns

ELSS offers investors an exposure to the equity market that has a significantly larger window to make profits as compared to traditional tax-saving policies.

Why Traditional Plans Continue to Remain Popular?

For many Indians, traditional tax saving policies offer a sense of safety and peace of mind. But is that all that drives them towards traditional tax saving policies? No.

Let’s break down a few reasons why traditional plans continue to remain popular:

Steady and Guaranteed Returns

Investment for many still remains a slightly daunting concept. Rather than spending time analysing the market and making a financial decision, many Indians choose to rely on government-backed schemes such as Public Provident Fund, National Savings Certificate, National Pension Plans, fixed deposits, etc, as they offer steady and guaranteed returns. Traditional tax-saving plans offer minimal risk of capital loss, a feature that many middle-class individuals in India continue to seek.

Lowered Chances of Risks

The dominance of traditional tax saving plans is also closely tied to investor psychology. According to experts, many investors in India view ELSS or other equity-linked investments as a risky space. The lower risk associated with traditional tax-saving policies often surpasses the impressive growth rate of ELSS.

Two-In-One-Goal: Insurance and Tax Savings

The Indian market offers several insurance policies that come with impressive tax-saving options. In such situations, many Indians view this policy as a two-in-one goal. Investing in endowment and money bank policies offers dual benefits, which is why such policies remain popular.

A Sense of Cultural Trust

For decades, Indians have trusted government-backed policies like PPF, NPS, NSC, etc, as a safe and secure method of financial planning. This generates a sense of cultural trust and familiarity with traditional tax-saving policies.

The Benefit of Diversification

One of the key reasons why tax saving plans continue to stay popular in India is that many investors prefer a hybrid strategy: combining the benefits of traditional tax saving plans and ELSS. This type of diversification allows them to balance their portfolio better.

Summing Up

ELSS, a modern high-return tax-saving instrument, has witnessed a significant rise in the Indian market, but traditional tax-saving policies continue to have their appeal intact with the Indian investor for reasons like steady returns and lowered risks. The Indian investment market is extremely wide, where replacing one investment instrument with another might not be required. Rather than choosing between ELSS and traditional tax-saving policies, the focus can be on diversifying the investment to take advantage of both worlds.

Whether your goals are to grow from market-linked equities or build a steady investment portfolio, it is best advised to explore your options smartly. If you are looking for the best tax-saving plans that align with your investment goals, then look no further and head to the Jio Insurance Broking portal.