Equity Linked Savings Scheme: How to choose and invest in the right ELSS

It is always the right time to invest in mutual funds, however, for those looking to earn high returns in a short period of time, note that the short term market changes rapidly.

Even though investing in mutual funds is seen to give higher returns than fixed investment options, most people still look at MFs for tax benefits. Investing in mutual funds helps in reducing one’s tax liability, along with making the investment grow over the long term.

ELSS is one of such mutual fund schemes. As the name suggests, under this Equity Linked Savings Scheme (ELSS), savings are invested in equity markets. ELSS is a diversified equity mutual fund, which is usually looked at by investors to save tax while making an investment in this fund. A minimum of 65 per cent of the ELSS fund’s assets is invested in the stock market. Investments under equity-linked savings schemes are diversified and invested across sectors and industries, unlike other fund options such as sector funds, financial services, infrastructure.

There are several tax-saving MFs to choose from if you are looking to save tax by investing in ELSS, however, if you are looking for one best MF scheme, there is no single scheme, as the returns are not guaranteed and may change over time.

Currently, even though the stock market appears to be in a better position, in fact crossing the pre-COVID levels, the economic conditions, however, don’t look much promising. Having said so, industry experts say long term investors in equities need to ignore such a situation, and need not be hesitant about investing in mutual funds because the market is low at the moment.

It is always the right time to invest in mutual funds, however, for those looking to earn high returns in a short period of time, note that the short term market changes rapidly.

With ELSS investors have their savings locked in for a period of 3 years. If your returns are low from your investment because the market hasn’t performed well after the lock-in has ended, you can continue with the fund without exiting.

You can plan the exit as and when the market rises and the NAV of schemes increases. Experts say individuals investing in ELSS Funds need not worried about the past or current state of the market. Not only one gets an upfront benefit in the form of tax savings, but also in the long run earn good returns if stayed invested.

New investors can invest in ELSS directly from a fund house or through online mutual fund distributor platforms. Having said that, choosing the right ELSS is equally important. Experts suggest, one should not decide on their own, especially new investors, as they are not equipped to pick their own mutual funds. Hence, it is better to take the help of a financial planner or advisor, with a proven track record of beating the markets.