Best ELSS Funds in India to Invest in 2020

What are ELSS Funds?

Equity Linked Savings Scheme(ELSS) is a kind of mutual fund scheme that invests in equity and equity-related instruments. ELSS comes with a lock-in of 3 years and provides a tax benefit up to 1.5 lakhs in a year under section 80C of the Income Tax Act.

Investments in ELSS can be made through lump-sum payments or SIP. If payments are made through SIP, the lock-in period of 3 years is taken for each SIP.

Features of ELSS Mutual Funds

Lock-in period

ELSS funds have the lowest lock-in period when it comes to tax-saving investments. It has a lock-in period of 3 years post which the investments can be updated. ELSS funds offer the possibility of a higher return as compared to traditional tax-saving fixed deposits.

Mode of investment

Investments in ELSS can be made either through the lumpsum method or SIP. If invested through SIP mode, it offers the benefit of rupee cost averaging and saves the trouble of investing a lumpsum amount at one go.

Thus investment through SIP mode also does not feels heavy on the pocket.

Tax Savings

Investments in ELSS funds provide a tax benefit of 1.5 lakh as per section 80C of the Act. It offers better returns and helps in minimizing your taxes.

Management of the invested amount

ELSS are managed by professionals who are well-versed with the market conditions and are aware of the ups and downs in the market. The money invested by anyone through ELSS is managed by these fund managers.

Who should invest in ELSS funds?

Any individual or HUF can make investments in ELSS through SIP or lumpsum method. ELSS is considered better if you have a long term investment horizon, preferably more than 3 years.

ELSS comprises mostly equity instruments that can offer exceptional returns but also demands a good understanding of equity asset class risk from the investor.

Furthermore, by investing in ELSS funds, one can claim to benefit up to 1.5 lakhs under section 80 C of the income tax act.

What are the Options for Investing in the Best ELSS Funds?

Growth Option

Under the growth option, the profits made by the fund is not paid off as dividend. Instead, they are reinvested in the scheme. The profits are distributed to the investors at the time of redemption. This is also dependent on the NAV of the fund as if the profits go up so will the NAV and vice-versa.

Dividend Option

As the name suggests, the profits made in the schemes are not re-invested but distributed as dividends to the investors on a half-yearly, quarterly or annual basis. The dividend declaration and payment is not fixed. It happens only when the scheme generates profits.

How to evaluate the best ELSS mutual funds?

Evaluating an ELSS fund can be a tricky task. One can check the below parameters in order to evaluate the funds:

Fund house history

Ideally, fund houses that have performed consistently over a long term horizon, say above 5 years, should be considered for the purpose of investment. If the fund outperforms its benchmark, it is considered that the fund has delivered higher returns. Keep in mind, the performance of the fund depends on the quality and performance of the stock it has in its portfolio.

Expense Ratio

ELSS funds are managed by professionals who invest their own time and resources to provide a better return on your investment. Their knowledge of the markets and deep understanding of the field helps them in evaluating which stocks should form part of the fund.

The expense ratio shows how much money goes towards managing the fund. If the fund has a lower expense ratio that means your take-home returns will be higher and vice versa.

Returns

Comparing just the respective fund’s return with the benchmark is not enough. One also needs to compare the performance of the funds with its competitors. The investments should be made after carefully evaluating the returns over a longer period of time.

Portfolio Turnover

Portfolio turnover simply means how quickly stocks in the funds are bought & sold by the fund manager.

As the funds are eventually handled by the fund manager, he gets to decide when to enter or exit the market. A low portfolio turnover indicates that he is neither entering nor quitting the markets.

On the other hand, a high turnover indicates that too frequent movements have been made in the portfolio.

Top 2 Best ELSS funds