Home Investment Master NRI Master Glossary
Contact us

How to Select ELSS - Equity Linked Savings Scheme?

Equity Linked Savings Scheme are a very popularTtax Savings Insruments. ELSS provide a great tax saving option with good returns & just three years lock in period. As compared to the traditional tax savings options of Life Insurance, PPF etc. only three years lock in period makes ELSS really attractive.

Once we decide to invest in ELSS, the diificult task is to select a fund/scheme which may give good returns as well as is secure. Its very important to park your money in right fund as returns vary significantly for different funds.

Though there is no defined system to judge the performance of a scheme, still there are certain parametres which one must look & understand while selecting an ELSS Fund. These parametres can guide you to a great extent to select a suitable fund. Sill one should never forget that final performance of a scheme/fund can not be assured.
Past performance of the Scheme/Fund-
Though its not necessary that a scheme/fund will earn the same as in past but still past performance plays a vital role. Performance of a fund for past 3 to 5 years gives an insight to the management of the fund and must be evaluated while chosing an ELSS plan. Its a good idea to check for the most consistent performers.

Compare the past 3-5 years performance of the fund with other benchmark mutual funds. Avoid funds which are with a past record of less than 3 years. 
Track record of the Fund Manager-

Funds of ELSS are managed by different fund managers. These fund managers plan and invest the funds of the scheme. A smart fund manager will be able to generate good returns through great investment plans.

In our opinion schemes/funds that have a team for fund management rather then a single fund manager shall be better. A good fund managemt team/fund manager will be able to invest funds intelligently and thereby generate stable returns even in the low periods. 

AUM (Assets under Management):

Assets under management popularly called as AUM is the total market value of the financial assets that a mutual fund invests/manages for its clients/customers. Higher Assets under management on one hand gives a sense of security and on the other hand have oppurtunity of better returns.

Though there is no rule that funds with higher Assets under Management (AUM) perform better, still in our opinion funds having higher AUM should be safer & if their team of fund managers is good, they should be able to perform better.

Established Fund Houses:

An established fund house is a safe and secure bet as their past performances can easily be tracked and other informations are also easily available. It is better to chose an established fund house especially when you want to consider risk factor. Established fund houses generally have stable returns. Its easy to track & compare the past records of established funds.

  • Dont invest all your funds in a single fund, instead diversify your portfolio to 3-4 schemes. 
  • Go for growth options of ELSS.
  • Investing for a longer term say 5-6 years is better for maximum returns.

Above parameters can guide to decide about the ELSS which may possibly have good returns but nothing is guaranteed. ELSS funds are also subject to market risks. Its recommended to research well before finalizing your ELSS fund house.

What are ELSS-Equity linked savings scheme?

content and images copyright, 2011-2020