ELSS funds outperformed their benchmark returns: Complete list of Top ELSS Mutual Funds

When considering tax-saving options in investment, one standout choice to keep in mind is ELSS funds. The dynamic feature of offering a tax-saving option sets ELSS funds apart from various categories available in the mutual fund space.

In this article, we will delve into ELSS funds along with the funds that have outperformed their benchmark indices. We’ll also discuss who they are suitable for, factors to consider before opting for ELSS funds, and the associated risks.

About ELSS Funds

An Equity-Linked Savings Scheme (ELSS) allocates 65% of its assets to equity and equity-linked securities, with additional exposure to fixed-income securities. Notably, this mutual fund scheme stands out due to its unique 3-year lock-in period. It holds the exclusive status of being the sole mutual fund eligible for tax deductions under Section 80C of the Income Tax Act, 1961.

Investors can claim a tax rebate of up to Rs. 1,50,000, potentially saving as much as Rs. 46,800 per year through tax benefits.

Who Should Invest in ELSS Funds?

• Investors Who Want to Save through Tax: ELSS funds are suitable for any taxpayer willing to take the risks associated with an equity-linked tax-saving instrument. This is the only 3-year scheme eligible for tax benefits under Section 80C.
• Long-Term Investors: As mentioned earlier, ELSS funds have a lock-in period, ensuring that you stay invested in the fund for at least three years. Moreover, these funds tend to perform much better when you stay invested even after the lock-in period, witnessing the growth potential.

These ELSS funds have beaten the index return in the past five years.

To evaluate the performance of these funds, we have compared the schemes’ return to their benchmark as mentioned above in the table.

Factors to Consider While Investing in ELSS Funds

The following factors should be considered when finding and choosing the best ELSS funds to invest in for 2024:

• Lock-in period: As mentioned earlier, the minimum lock-in period of the fund is three years. The investments need to be kept for a minimum of three years, and it is not possible to redeem the holdings before this period. Therefore, investors who choose to invest in these funds must consider this factor.
• Returns: It’s important to be aware that ELSS funds do not provide guaranteed returns as they are entirely contingent on the performance of the underlying securities. However, a longer investment horizon can potentially yield higher returns compared to other tax-saving investment alternatives.
• Investment Horizon: To invest in ELSS funds, one should have a longer investment horizon, perhaps exceeding five years. This longer duration helps mitigate market volatility, given that the equity exposure of ELSS funds necessitates a more extended investment horizon.

Risk Involved in ELSS Funds

Majorly, there are two risks involved while investing in these funds: Liquidity risk and Market risk. Liquidity risk arises when you want to redeem your investment, but the lock-in period condition exists, even if you need to redeem and require the funds urgently.

On the other hand, Market risk refers to the probability that investors will suffer losses due to the market’s poor performance. These schemes must invest at least 80% of their assets in equity securities. Consequently, an ELSS fund’s portfolio is subject to market risk.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.