ELSS V/S Tax saving mutual funds same or they are different?
ELSS and tax-saving Mutual Funds are the same. Equity Linked Savings Schemes or ELSS funds are the best investment options out there, if you’re looking to create long-term wealth while saving on taxes. Under Section 80C, these investments qualify for a tax rebate up to Rs. 1,50,000. This diversified equity fund is ideal for your long-term financial goals such as planning your retirement or buying a new home.
ELSS funds have a lock-in period of three years, though we would suggest investing for a longer duration or until you have enough to achieve your goal. Remember that these funds give you higher returns than any other tax-saving schemes such as tax-saving Fixed Deposit out there. Besides, you don’t have to invest a lump-sum amount, you can invest in these funds through a Systematic Investment Plan (SIP).
Here’s what you should look at before investing in ELSS Mutual Funds.
Expense Ratio – While selecting an ELSS fund, you should look at the expense ratio of the fund. This is basically the amount of money that the fund management company charges an investor for managing the fund. This varies from fund to fund. The formula is total expenses incurred by the fund divided by its Assets Under Management (AUM).
Past Performance – Another important selection criteria is the past performance of the fund. Assessing a fund’s historical performance will give you insight into its probable future performance. A fund that has performed consistently is a good bet.
Age of the scheme – Since Mutual Funds are subject to market conditions, it is better to opt for the older schemes. A scheme that has a history of 5 to 10 years would have gone through various market phases – bull, bear and stagnant. So, these are generally considered better options than the other schemes.
Size of the corpus – Yes, bigger is better! Get to know the corpus of the scheme you’re planning to invest in and compare this with the other schemes available in the market. A bigger corpus means the particular scheme is trusted by a lot of other investors.
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