ELSS Mutual Fund Preferences of Indian Tax Savers

Abstract

Tax planning strategies are important for tax payers whose aim is to reduce their tax outgo on various types of income and capital gains. While there are several tax saving instruments that qualify under Section 80C of the Income Tax Act, 1961, Equity Linked Savings Scheme (ELSS) has a special importance. It provides the least possible lock-in period among all tax saving instruments besides providing equity asset investment exposure making it a good long-term tool for wealth creation. This paper studies the investment behaviour of a typical ELSS mutual fund investor. Primary data is used to identify preferences of tax saving instrument by Indians and to understand if diversification across multiple ELSS schemes is done. Understanding the mode of investing helps us get insight on investor behaviour. Finally, we get to know if ELSS is being used by other family members. Secondary data study allows us to understand the trends and dynamics of ELSS. Our study checks scheme Average Assets Under Management (AAUM) data to understand if investors delay and thereby hurry their investing just before closing of the financial year. These findings are of significance for Asset Management Companies (AMCs) in their product positioning and building promotional strategies. Market regulator SEBI and the Association of Mutual Fund Industry (AMFI) can use it to improve the product offering and expanding its reach. Government and Ministry of Finance can use these findings for tweaking tax laws so as to promote investment culture.