ELSS FUNDS

If ELSS funds top our ranking for the second consecutive year, it is be cause of their tremendous potential, high liquidity and greater transparency. The ELSS category has given average returns of 17.8% in the past three years. The three-year lock-in period is the shortest for any Section 80C option. What's more, you can get some of the investment back if you opt for the dividend option. It is also very easy to get details of the fund's portfolio. Add to these advantages the ease of investment that mutual fund houses are offering. If you have already fulfilled the KYC requirements, you can invest online.Even if you are a new investor, fund houses facilitate the investment by picking up the documents from your house and guiding you through the KYC screening.

ELSS funds are equity schemes and carry the same market risk as any other diversified fund. The previous year was not good for equities, with the Sensex ending the year with a 5% loss. Even some top-rated ELSS funds lost money in the past year. Investors who opted for the ultra-safe PPF would have made more money (see table). However, the picture changes when you look at the long-term performance. ELSS funds are miles ahead of the PPF in the 3-year and 5-year returns.

The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, this window is almost closed now. At best, a taxpayer will manage 2-3 SIP instalments before 31 March. At the same time, valuations are not very stretched right now, so one can consider putting a bigger amount.