Why don’t we have a balanced ELSS ? All available ELSS schemes (equity linked saving schemes) in the country today are 100% equity schemes. A balanced fund would seek to invests a minimum of 65% in equities and the remaining in debt or cash. A balanced ELSS would seek to bring down the volatility in the performance by investing part of the corpus in non-equity options. Such a product is important for investors who wish to seek higher returns through equities while tempering down the volatility through a balanced approach. Needless to say the product, ELSS would help investors save taxes under section 80C of the IT Act.

ELSS schemes have become popular with the salaried classes as well as the high net worth investors because of the superior return potential it offers. However the markets we witnessed last year have dampened the spirits of many. An ELSS schemes is not always an alternate to the traditional investments like PPF and other government schemes. While opting for an ELSS, investors should first really decide if they have enough risk appetite to justify investment into a 100% equity linked product. While the merits of equity as a long term growth asset should not be questioned, what really matters is the investors risk appetite. A balanced ELSS would probably fill a gap in the market by offering a product that balances volatility through a part investment in debt.

At a time like today where aggressive equity exposures not in line with investors’ asset allocation patterns have resulted in negative returns on client portfolios, the product can be used by advisors to bring client investments in line with their strategic asset allocation patterns. While it’s never a good idea to base investment decisions on short term market movements or sentiments, a product like this is likely to do well in current situations and may suit AMCs who look at garnering assets in line with market conditions. A win-win proposition, I would say.