AMFI in its note said the government introduced ELSSs to encourage retail investors to invest in equity instruments in 1992. The government also offered tax breaks under Section 80C. Over the years, the ELSS has become an attractive investment avenue for retail investors to invest in the stock market via mutual funds to create wealth over a long period with tax benefits.
Several fund managers believe that time is right for the government to introduce a debt mutual fund option under Section 80C. AMFI says it will also help to channelise household savings into the bond market and deepen the bond market.
“At the moment, mutual fund investors only have the ELSS if they want to save taxes and create wealth. This leaves out conservative investors who don’t want to take the risk of investing in equities. The DLSS will address this issue, says a fund manager.
AMFI says DLSS funds can invest at least 80% of the corpus in debentures and bonds of companies permitted under Sebi Mutual Fund Regulations. The rest of the corpus may be invested in money market instruments and other liquid investments.
AMFI says that the government should offer tax incentives on investments up to Rs 1.5 lakh under a new subsection, it also says these funds can have a lock-in period of five years, along the lines of five-year tax saving bank deposits.
Now, the big question: should you invest in DLSS funds? More importantly, should you invest in DLSS funds or ELSS funds to save taxes under Section 80C?Seasoned mutual fund investors will know that ELSSs or tax saving mutual funds allow investors to invest up to Rs 1.5 lakh and claim tax benefits in a financial year. The mutual fund industry says ELSS funds cater to individuals with a higher risk appetite, whereas ELSS funds will help conservative investors to save taxes under Section 80C. That means if you have a very high risk appetite, you can invest in ELSS funds. Conservative investors with a low risk appetite can opt for DLSS funds.
Finally, financial planners say investors should always focus on their financial plan and choose investment options that match their goals. For example, if you want to use the investment to add to your retirement corpus, you should consider investing in ELSS funds. However, if you want to use the money for a purchase after five years, you can choose DLSS funds.
