ELSS Mutual Funds: Today, investors have a wide range of options, including fixed deposits, debt instruments, equities, real estate, and more. While some investments, like bank fixed deposits, offer fixed returns in the range of 7% to 8%, these returns may not meet the expectations of all investors. On the other hand, options like equities, whether directly or through mutual funds, can deliver higher returns but lack the assurance of fixed returns.
In such a scenario, Equity-Linked Savings Schemes (ELSS) stand out by offering the potential for higher returns typically associated with mutual funds, along with the added benefit of tax savings.
What is ELSS Fund and how to invest?
Through an ELSS, which is also called tax-saving mutual fund, investors put their money into equity and equity-related instruments. ELSS funds are a popular choice for long-term investors because they offer the potential for high returns and tax savings.
ELSS funds offer tax benefits under Section 80C of the Income Tax Act, allowing deductions of up to Rs 1.5 lakh. They have a three-year lock-in period, after which they become open-ended equity schemes. While there’s no cap on the investment amount, you can start with as little as Rs 500, investing either as a lump sum or through a Systematic Investment Plan (SIP).
Also read: Mirae Asset Mutual Fund’s rare feat: Rs 2 lakh crore AUM, 69 schemes, 68 lakh folios!
How to choose the best ELSS Mutual Fund for investment
One needs to choose the right ELSS fund after conducting thorough research, though it doesn’t guarantee success. There are key parameters to consider when selecting an ELSS fund. Asset Under Management (AUM) is one of them, as a larger AUM often indicates investor confidence. The fund’s performance ranking over time helps gauge its consistency. Investors should also analyze ratios like Sharpe and alpha to understand risk-adjusted returns. Additionally, factors such as the Total Expense Ratio (TER) and the fund manager’s track record and expertise can help investors make an informed choice.
5 common mistakes to avoid while investing in ELSS:
No need to exit after 3 years:
Many people make this mistake of redeeming their fund units once their investment completes three years, ELSS funds have a mandatory three-year lock-in period. So remember that you do not have to redeem funds immediately after the lock-in ends.
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