Investing in Equity-Linked Savings Schemes (ELSS) is a popular way for investors to save on taxes while gaining exposure to the equity market. ELSS mutual funds have become increasingly popular among investors due to their potential to provide high returns in the long term, along with the added tax benefits. In this blog, we will discuss some of the best ELSS mutual funds to invest in 2021.
What are ELSS Mutual Funds?
Equity-Linked Savings Schemes or ELSS is a type of mutual fund that invests in equity and equity-related securities. ELSS mutual funds come with a lock-in period of three years, which means investors cannot withdraw their investment before three years from the date of investment. ELSS mutual funds are eligible for tax benefits under Section 80C of the Income Tax Act, which allows investors to claim a tax deduction of up to Rs. 1.5 lakh in a financial year.
Best ELSS Mutual Funds in 2021
a. Axis Long Term Equity Fund The Axis Long Term Equity Fund is a top-performing ELSS mutual fund with a consistent track record of generating high returns. The fund has a diversified portfolio with investments in large-cap, mid-cap, and small-cap companies. The fund has generated an average annual return of 19.07% over the last five years.
b. Mirae Asset Tax Saver Fund The Mirae Asset Tax Saver Fund is another popular ELSS mutual fund that has consistently delivered high returns over the long term. The fund has a diversified portfolio with investments in large-cap, mid-cap, and small-cap companies. The fund has generated an average annual return of 21.04% over the last five years.
c. Aditya Birla Sun Life Tax Relief 96 Fund The Aditya Birla Sun Life Tax Relief 96 Fund is a well-established ELSS mutual fund that has been delivering high returns over the long term. The fund has a diversified portfolio with investments in large-cap, mid-cap, and small-cap companies. The fund has generated an average annual return of 18.37% over the last five years.
d. ICICI Prudential Long Term Equity Fund The ICICI Prudential Long Term Equity Fund is a popular ELSS mutual fund that has consistently outperformed its benchmark over the long term. The fund has a diversified portfolio with investments in large-cap, mid-cap, and small-cap companies. The fund has generated an average annual return of 19.57% over the last five years.
e. DSP Tax Saver Fund The DSP Tax Saver Fund is a top-performing ELSS mutual fund that has a consistent track record of delivering high returns over the long term. The fund has a diversified portfolio with investments in large-cap, mid-cap, and small-cap companies. The fund has generated an average annual return of 20.16% over the last five years.
Factors to Consider Before Investing in ELSS Mutual Funds
Before investing in any ELSS mutual fund, it is important to consider the following factors:
a. Investment Horizon: ELSS mutual funds come with a lock-in period of three years. Therefore, it is important to consider your investment horizon before investing in an ELSS mutual fund.
b. Risk Appetite: ELSS mutual funds are equity-oriented mutual funds and are subject to market risk. Therefore, it is important to assess your risk appetite before investing in an ELSS mutual fund.
c. Fund Performance: The performance of the ELSS mutual fund is an important factor to consider before investing. Investors should check the historical performance of the fund over the past 5 to 10 years.
d. Fund Manager: The fund manager’s experience and track record are crucial factors in the performance of the ELSS mutual fund. Investors should check the fund manager’s track record before investing in the fund.
e. Expense Ratio: The expense ratio of the ELSS mutual fund is an important factor to consider as it impacts the overall returns of the fund.
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Conclusion
ELSS mutual funds are an excellent way for investors to save on taxes while gaining exposure to the equity market. Investors should consider their investment horizon, risk appetite, fund performance, fund manager’s track record, and expense ratio before investing in an ELSS mutual fund. The above-listed ELSS mutual funds are some of the best ELSS mutual funds to invest in 2021. However, investors should always consult a financial advisor before making any investment decisions.
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Frequently Asked Questions (FAQs)
What is the lock-in period of an ELSS mutual fund?
ELSS mutual funds come with a lock-in period of three years, which means investors cannot withdraw their investment before three years from the date of investment.
What are the tax benefits of investing in ELSS mutual funds?
ELSS mutual funds are eligible for tax benefits under Section 80C of the Income Tax Act, which allows investors to claim a tax deduction of up to Rs. 1.5 lakh in a financial year.
Can an investor invest more than Rs. 1.5 lakh in ELSS mutual funds in a financial year?
An investor can invest more than Rs. 1.5 lakh in ELSS mutual funds in a financial year, but they will only be eligible for tax benefits on investments up to Rs. 1.5 lakh.
Can an investor redeem their investment in an ELSS mutual fund before the lock-in period ends?
Investors cannot redeem their investment in an ELSS mutual fund before the lock-in period of three years from the date of investment.
What is the minimum investment amount for an ELSS mutual fund?
The minimum investment amount for an ELSS mutual fund varies from fund to fund and can range from Rs. 500 to Rs. 5,000.
What is the ideal investment horizon for an ELSS mutual fund?
The ideal investment horizon for an ELSS mutual fund is at least five to seven years or more to reap the full benefits of the equity market.
Are ELSS mutual funds riskier than other mutual funds?
ELSS mutual funds are equity-oriented mutual funds and are subject to market risk. Therefore, they may be considered riskier than debt-oriented mutual funds.
Can an investor invest in ELSS mutual funds through a Systematic Investment Plan (SIP)?
Yes, investors can invest in ELSS mutual funds through a Systematic Investment Plan (SIP) mode.
How can an investor choose the right ELSS mutual fund to invest in?
Investors should consider their investment horizon, risk appetite, fund performance, fund manager’s track record, and expense ratio before investing in an ELSS mutual fund.
Can an investor switch from one ELSS mutual fund to another ELSS mutual fund?
Yes, investors can switch from one ELSS mutual fund to another ELSS mutual fund after the lock-in period of three years from the date of investment.
