{"id":12920,"date":"2018-12-24T15:58:09","date_gmt":"2018-12-24T10:28:09","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=12920"},"modified":"2026-04-09T17:06:29","modified_gmt":"2026-04-09T11:36:29","slug":"how-to-choose-the-best-elss-fund","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/how-to-choose-the-best-elss-fund\/","title":{"rendered":"How to choose the Best ELSS Mutual Fund?"},"content":{"rendered":"
ELSS or Equity Linked Savings Scheme is like any other equity mutual fund scheme, with a crucial difference in offering tax benefits. An ELSS gives you a tax deduction benefit of up to \u20b91.5 lakh under Section 80C.<\/strong><\/div>\n

It\u2019s that time of the year when every salaried class individual starts looking for tax-saving alternatives. Mutual Fund ELSS scheme<\/a> is one of these options and the best one available at that. Choosing the best ELSS fund is critical to maximise both tax savings and long-term wealth creation.<\/p>\n

What is an Equity Linked Saving Scheme or ELSS?<\/strong><\/h2>\n

ELSS or Equity Linked Savings Scheme is like any other equity mutual fund scheme, with a crucial difference in offering tax benefits. An ELSS gives you a tax deduction benefit of up to \u20b91.5 lakh under Section 80C.Choosing the best ELSS fund is critical to maximise both tax savings and long-term wealth creation.<\/strong><\/p>\n

Why ELSS is Considered the Best ELSS Fund Category for Tax Saving<\/h2>\n

Simply put, it gives you the best chance to earn higher returns than any other tax-saving alternative, as it is the only pure equity investment vehicle that offers tax benefits.<\/p>\n

See the table below for a comparison with other tax-saving instruments.<\/p>\n

\"Why<\/a><\/p>\n

What is the Lock-in Period?<\/strong><\/h2>\n

It comes with a three-year lock-in period.<\/strong> While some call this a hindrance others tout it as an advantage, given that the other alternatives have a higher locked-in period.<\/p>\n

We believe, neither is the case. Investing in an equity mutual fund is similar to investing in direct stocks. You need to invest in an ELSS scheme with a long-term horizon of 7-10 years, just like you would invest in stocks.<\/em><\/strong><\/p>\n

E.g. take one of the random funds SBI Long Term Equity fund<\/a> with the longest history. Over a 24 year period, if you had invested in it for any 3 years, you would have seen positive returns for 78% of the time but over 8% CAGR returns only 55% of the time.<\/p>\n

Median returns in those positive years would have been 9.6%. However, if you had remained invested over 10 year period, you would have earned positive returns always and besides more than 8% CAGR for almost 84% of the time. The median return over 10 year period would have been 12.3%.<\/p>\n

SBI Tax Gain Regular Plan:<\/strong><\/h4>\n

\"SBI<\/a><\/p>\n

Sensex without Dividends:<\/strong><\/h4>\n

\"Sensex<\/a><\/p>\n

Obviously, it is much safer and better to stay invested for 10 years or more to get the maximum benefit of ELSS. Short-term returns in equity investment are always more volatile but long-term returns are to a large extent consistent and predictable.
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\n\"webinar<\/a><\/p>\n

How to Choose the Best ELSS Fund?<\/h2>\n

Quality of the portfolio, consistency of returns, upside potential and Expense ratio are a few parameters you should look at while choosing an ELSS fund.\u00a0It will help you shortlist the best ELSS funds<\/a>.<\/em><\/p>\n

Quality of the Portfolio<\/strong><\/h3>\n

We have<\/strong>\u00a0a method of fundamental analysis to ascertain the quality of stocks based on their \u201810-Year performance on key parameters\u2019 (Green-Orange-Red)<\/em>.<\/strong><\/p>\n

If the Fund is holding a lot of Red stocks, it means it\u2019s taking high risks. Over the long term, good quality (Green)<\/span><\/strong> stocks give the highest returns but occasionally a fund may buy risky (Red)<\/span><\/strong> stocks to generate high returns in the short term which may go against it.<\/p>\n

A fund with a Green Quality of Portfolio rating is preferable over others.<\/p>\n

Consistency of returns<\/strong><\/h3>\n

Though past returns are no guarantee to future returns, a fund that has generated consistent returns in the past is more likely to keep doing so in the future, other things being the same.<\/p>\n

By other things, we mean the fund manager or his investment process, things that will decide the funds\u2019 returns.<\/p>\n

Upside potential<\/strong><\/h3>\n

Again just like you wouldn\u2019t buy a stock if there is no further upside left, you should check for the upside potential before you buy an MF.<\/p>\n

You can calculate the upside by looking at how much returns the current portfolio generates over the next 3-5 years.<\/p>\n

Expense ratio<\/strong><\/h3>\n

Most investors think that apart from the fees that they pay to distributors, mutual funds themselves have no fees. This is not true.<\/p>\n

A fund expense ratio<\/a> is the fees you end up paying the fund manager for his services and other operational costs.<\/p>\n

Just like you would look for the lowest fees for any service, choose a fund with the lowest expense ratio<\/p>\n

\"\"<\/b><\/a><\/p>\n

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ELSS or Equity Linked Savings Scheme is like any other equity mutual fund scheme, with a crucial difference in offering tax benefits. An ELSS gives you a tax deduction benefit of up to \u20b91.5 lakh under Section 80C. It\u2019s that time of the year when every salaried class individual starts looking for tax-saving alternatives. Mutual […]<\/p>\n","protected":false},"author":17,"featured_media":12933,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1160,1158],"tags":[],"modified_by":"MoneyWorks4me","_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/12920"}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=12920"}],"version-history":[{"count":2,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/12920\/revisions"}],"predecessor-version":[{"id":21422,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/12920\/revisions\/21422"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media\/12933"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=12920"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=12920"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=12920"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}