ELSS or Equity Linked Savings Scheme is a type of mutual fund that invests in equity or equity-related securities and offers tax benefits under Section 80C of the Income Tax Act. ELSS funds have a lock-in period of three years, which means you cannot withdraw your money before that. ELSS funds are suitable for investors who have a high risk appetite and a long-term investment horizon.
Why Invest in ELSS Funds?
ELSS funds have several advantages over other tax-saving options such as PPF, NSC, or FDs. Some of them are:
- Higher returns potential: ELSS funds can generate higher returns than fixed-income instruments over the long term, as they invest in the stock market. The average return of ELSS funds over the last 10 years is around 15%, while the average return of PPF is around 8%.
- Shorter lock-in period: ELSS funds have the shortest lock-in period of three years among all tax-saving options. This gives you more flexibility and liquidity than other options that have longer lock-in periods of five to 15 years.
- Tax efficiency: ELSS funds are more tax-efficient than other options, as they are subject to long-term capital gains tax (LTCG) of 10% on gains above Rs 1 lakh in a financial year. Other options such as FDs are subject to income tax as per your slab rate, which can be as high as 30%.
- Diversification: ELSS funds provide diversification to your portfolio, as they invest across various sectors, market capitalizations, and themes. This can help you reduce your overall risk and enhance your returns.
How to Choose the Best ELSS Funds?
There are many factors that you should consider while choosing the best ELSS funds for your portfolio. Some of them are:
- Performance: You should look at the past performance of the fund over different time periods, such as one year, three years, five years, and 10 years. You should also compare the fund’s performance with its benchmark and category average to assess its relative performance.
- Consistency: You should look at the consistency of the fund’s performance over different market cycles, such as bull and bear phases. You should also check the fund’s rolling returns, which show the average annualized returns for a fixed period over different intervals. A consistent fund will have higher and stable rolling returns than an inconsistent fund.
- Risk: You should look at the risk involved in investing in the fund, such as volatility, downside risk, and beta. You should also check the fund’s risk-adjusted returns, such as Sharpe ratio, Sortino ratio, and Treynor ratio. A good fund will have higher risk-adjusted returns than a bad fund.
- Expense ratio: You should look at the expense ratio of the fund, which is the annual fee charged by the fund house for managing your money. A lower expense ratio means more returns for you. You should also compare the expense ratio of the fund with its peers and category average to assess its cost-effectiveness.
- Fund manager: You should look at the fund manager’s experience, qualification, track record, and investment style. A good fund manager will have a long tenure with the fund house, a strong academic background, a proven track record of delivering superior returns, and a clear and consistent investment strategy.
Top 5 Best ELSS Funds to Invest in 2023
Based on the above criteria, here are the top five best ELSS funds to invest in 2023: Open in browser
| Fund Name | Fund Size (in Cr) | Return (1 Year) | Return (3 Year) | Return (5 Year) | Return (10 Year) | Expense Ratio | Sharpe Ratio |
|---|---|---|---|---|---|---|---|
| Quant Tax Plan | 4,049 | 30.68% | 28.24% | 22.64% | 18.81% | 0.49% | 2.53 |
| Canara Robeco Equity Tax Saver Fund | 5,750 | 20% | 23.67% | 19.04% | 16.44% | 1.98% | 1.77 |
| Mirae Asset Tax Saver Fund | 16,634 | 20.3% | 23.06% | 21.01% | NA | 1.64% | 1.76 |
| Bank of India Tax Advantage Fund | 4,776 | 23.61% | 22.86% | 18.57% | NA | 2.06% | 1.83 |
| IDFC Tax Advantage (ELSS) Fund | 3,855 | 20.34% | 22.69% | 18.13% | 15.67% | 1.97% | 1.77 |
FAQ
Q: What is ELSS Mutual Fund?
A: ELSS Mutual Fund is a type of mutual fund that invests in equity or equity-related securities and offers tax benefits under Section 80C of the Income Tax Act.
Q: What are the benefits of ELSS Mutual Fund?
A: ELSS Mutual Fund has several benefits, such as higher returns potential, shorter lock-in period, tax efficiency, and diversification.
Q: How to invest in ELSS Mutual Fund?
A: You can invest in ELSS Mutual Fund through online or offline modes, using your PAN card, KYC documents, and bank details. You can invest either through lump sum or SIP mode.
Q: How much can I invest in ELSS Mutual Fund?
A: You can invest any amount in ELSS Mutual Fund, but you can claim tax deduction only up to Rs 1.5 lakh in a financial year under Section 80C.
Q: How long should I stay invested in ELSS Mutual Fund?
A: You have to stay invested in ELSS Mutual Fund for at least three years, as it has a lock-in period of three years. However, you should ideally stay invested for longer periods, such as five to seven years, to get the best returns from equity investments.
Also Read –
- ELSS Mutual Funds – What is ELSS Funds & How to Invest in India
- Mutual Fund SIP: Here are the top 5 mutual funds for SIP of 3 to 5 years
DISCLAIMER – Mutual fund investments are subject to market risks; take expert opinion before investing