Top ELSS Mutual Funds for the Financial Year 2017-18
Equity Linked Savings Scheme (ELSS) is a tax saving mutual fund investment scheme which allows the investor to earn better returns on the investment. The investment has the shortest lock-in period among other Tax Saving Investment Options of 3 years, post which the amount may be withdrawn.
Equity Linked Savings Scheme (ELSS) do carry moderate risk as the performance is market linked and the return on investment is not assured. However, if we look at the performance history of the Mutual Funds, we may safely say that investment in ELSS yields decent return provided one is patient and willing to wait little longer than the lock-in period. If the market is performing well then within 3 years the investment is expected to provide decent returns. We do have many ELSS in the market and in this post, I will try and shortlist some of the top performing Mutual Funds.
Investment in ELSS is eligible for Tax Deduction U/S 80C up to the maximum limit of Rs 1,50,000/-.
Mode of Investment
One may make a lumpsum investment or opt for Systematic Investment Plan (SIP) which provides you the comfort of making the investment in installments.
It is always advisable to invest in ELSS through Systematic Investment Plan (SIP) as it is convenient to make regular investment instead of lumpsum investment.
Let’s first look at the parameters for selecting the ELSS Funds:
Asset Under Management (AUM): It is the estimation of total market value of investment managed by the respective Mutual Fund. This provides indication about the popularity of the fund which may be used as one of the benchmark to understand the potential of the fund.
Consistency (Performance): It is one of the most crucial aspects which an Individual should consider while opting for an ELSS plan. A fund which has performed consistently should always be given priority over fund which has outperformed only in a particular year. Long term sustainability is very important for equity funds which may be determined through consistency shown over the years by the funds. Consistent performers should always be considered for investment.
Nature of Funds: Market cap orientation of the Fund should also be considered while investing in ELSS. The funds may be diversified in to Large Cap, Mid Cap and Small Cap sectors. Large Cap Funds are less volatile and returns too may be sedate when compared to Mid Cap and Small Cap Funds. However, the choice of investment should be decided on the risk appetite of the concerned investor.
How to Chose the Right ELSS Fund?
Opting for a Large Cap oriented Fund is a wise option if you are just staring with investment in ELSS as the volatility is comparatively low.
SIP is the ideal option to invest as it helps to balance out in case of adverse market scenarios.
One should remain invested in the Fund overall a considerable time in order to earn decent returns.
Over Diversification/Recycling of Funds in ELSS should be avoided as it makes it difficult to monitor the returns and at the same time the benefits may get diluted too.
Withdrawal of Funds
Investors should be patient with their investment at the time of maturity. If there is no immediate requirement for the fund, then one may remain invested. In case, the market is underperforming, one may wait for the market to recover before investing.
Atleast, 5 to 7 years period should be allowed to a fund in order to earn decent return on the investments.
This article is for informational purpose only. Readers are advised to research further to have more clarity on the topic. It is very important to do your own analysis and consult your Financial Advisor before making any investment based decision.