How to Select Best ELSS Mutual Fund: Many investors consider ELSS (Equity Linked Saving Scheme) as a better option for tax saving, it has also proved to be a great investment option. It has given excellent returns to the investors. However, many investors in the market find it difficult to choose the best fund and this problem gets aggravated when the track record and asset allocation of two funds are similar. In such a situation, investors can take a better decision for themselves keeping some basic things in mind.
Taxpayers can claim tax deductions up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. Under this section, many investment options including PPF get the benefit of tax exemption. However, ELSS mutual funds have the shortest lock-in period, which further increases its attractiveness. It is a tax saving fund under which one can invest in equity and equity oriented securities. Some part of the investors’ capital is also invested in debt instruments.
Top ELSS Mutual Fund: In addition to tax saving, ELSS is also excellent in terms of returns, investors got up to 20% returns in 5 years
Before investing in a fund, its past performance should be compared with its peers. However, it should be noted here that past performance does not guarantee better returns on future investments. The return on the investment made in the fund completely depends on the market movements and the decisions of the fund manager.
To invest, choose a fund house that has consistently outperformed over a long period of time such as 5-10 years. The performance of a fund reflects the quality and benchmark of the stocks included in its portfolio.
This is a very important factor in selecting the fund for investment. The expense ratio gives an idea of how much you have to pay for managing your funds. The lower it is, the higher the returns are likely to be. If the track record and asset allocation of two funds are almost similar, then one should choose the fund which has low expense ratio.
Various parameters like Standard Deviation, Sharpe Ratio, Beta can also be considered for analyzing the performance of a fund. It is more risky to invest in a fund which has higher standard deviation and beta. Provides information about standard deviation and beta volatility. Apart from this, you can also choose funds from Sharpe Ratio, which is more likely to increase returns. This gives an idea of how much additional return will be available by holding a risky asset.
Who should invest in ELSS Mutual Funds
- Any individual or HUF looking for investment options to save tax which can give better returns can invest in this.
- In this, only those people should invest who want to maintain their investment for at least three years.
- It has a lock-in period of three years on investment. If the money invested in this is also invested in equity, then it is better for those people who can take the risk related to the market.
(Disclaimer: Investment in ELSS is subject to market risks. Here you are just giving information. Before taking any investment related decision, please consult your advisor.)