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Investing in ELSS Mutual Fund

THERE are several differences that will be witnessed when an investor makes the use of equitylinked savings scheme (ELSS) as an option for their tax savings as compared to other routes. By understanding these differences, the investor will be able to know the exact features that they will actually face while investing in this particular instrument. It also makes for better comparisons and hence is helpful in making the final decision. Here are some important features of ELSS on this front.

Equity exposure:

 

If there is a careful look at the various options that are present under the deduction choices for Section 80C then it is clear that most of them are pure debt options, where the exposure is restricted to a single asset class. This makes most of their features in terms of the risk-reward ratio similar. So for those investors who wish to have a different kind of exposure, the choice is limited.

Among all of these, an option that gives a pure equity exposure is just the ELSS choice, where the investor can ensure that this is a high-risk high return choice. This completely alters the nature of the exposure and hence, investors can make a choice from the option available. This is good for them as the presence of different assets in the portfolio is better for the overall structure and it would also ensure that there is an exposure that behaves differently and is influenced by varying factors. Risk element: While the presence of the equity choice is appreciated, there is also the question of the risk that would arise in the entire situation. The various debt options that are present would ensure that there is a fixed rate of return that would be earned by the investor and hence, the earnings rate is known and then there would not be any impact as far as the capital is concerned because this would be protected. Under the ELSS position, this changes, because there is an element of risk in both the returns as well as the capital. If the market conditions are not good then the investor will realise that he or she is not getting the expected return. At the same time, there is also the risk of loss of capital.

Tracking:

 

The process of investment in an ELSS does not just end with the investment but there is also an element of tracking that would have to take place. In other debt investments, there is not much to be done once the initial investment is made, but the situation here is different. There is a threeyear lock in as far as the ELSS is concerned, but this does not mean that just because of the lock in there is nothing to be done. The investor would have to regularly track the ELSS to see the kind of impact that its performance is witnessing and the manner in which the portfolio is being changed along with the changing conditions in the economy. This is important because if this is done regularly then the investor will have a better view of the changing conditions and the manner in which they would act once the lock in period is over. Thus the tracking process would also need to be set for this particular investment.

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Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

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