Best ELSS Funds
Qualities that make the top ELSS Funds
- Equity Linked Savings Scheme (ELSS) fall under Section 80C, offering tax rebates of INR 150,000 p.a.
- These are mutual funds with 3-year lock-in periods.
- Check the past performance of ELSS schemes before investing.
- Know your fund manager and expense ratio for better investments.
- Consider your risk appetite as ELSS funds can be risky but generate higher rewards.
With so many varieties of mutual funds available, it can be challenging to pick the right one. Fortunately, the Securities and Exchange Board of India (SEBI) has classified mutual funds and sub-categories. Equity Linked Savings Scheme (ELSS) Mutual Funds are categorised as Equity Mutual funds and popular investment choices. If you wish to find out what makes the best ELSS Funds, you must look for certain qualities within the fund. Let us understand ELSS Mutual funds and how to pick the best ones.
Understanding ELSS Mutual Funds
Equity Linked Savings Scheme Mutual Funds are also referred to as Tax Savings Funds. Approximately 80 per cent of the assets of the fund are invested in equity schemes. ELSS Funds fall under Section 80C of the Income Tax Act. As such, if you invest in ELSS, you can claim a tax rebate of INR 150,000 per annum. Also, these funds have a mandatory lock-in period of three years, which is the shortest among all Section 80C investments.
Qualities That Determine The Best ELSS Funds
ELSS investments can be considered as mid to long term investments, depending on your preferred investment horizon. They are considered risky but can generate significant returns. Here are some qualities that make the best ELSS Mutual Funds.
You must check how the mutual fund has performed across various market cycles in the past. Take data of at least five years into consideration. A good fund generates stable, consistent returns even during volatile and fluctuating market cycles.
The fund manager is at the heart of every mutual fund investment, including ELSS. Before you pick a fund, you must check other funds handled by the fund manager – the returns accrued and the performance in volatile market conditions. You must also consider the years of experience the fund manager brings to the table and how well the manager understands the investment market.
When you invest in mutual funds, you must account for the administrative processes and costs like commission, fund managers’ fees, etc. In case of high expense ratio costs, the profits into your pockets can reduce significantly. ELSS funds with lower expense ratios tend to offer comparatively higher returns, making them the best ELSS mutual funds.
While considering investments in ELSS, you must also account for three critical personal factors. These include your investment goals and investment horizons. Remember that ELSS funds come with 3-year lock-in periods, and you cannot exit them prematurely. Also, since ELSS funds are considered risky, you must check your risk appetite. These funds can generate significantly higher returns but can also erode your capital investment amount. So be sure before you invest.
Now that you know what makes the best ELSS Funds, you can start investing today. ELSS Funds are top-rated because they offer dual benefits of tax rebate and wealth creation. Earn adjustable inflation returns and diversify your portfolio with ELSS.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.