ELSS Best of both the worlds

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at the current NAV price.

Growth option is the best and the most used one as your investment value grows faster. It is seen that majority of the investments happens in March as the main objective is tax benefits and not returns. They invest a lumpsum amount. Ideally, an investor should invest in such a manner that it should generate high returns with low or no pressure felt as far as cash position is concerned.

Investors can also go in for Systematic Investment Plan (SIP), where investment can be made in small installments at regular intervals on a fixed date for a certain period: half-yearly, annually, etc. Also intervals can be weekly, monthly, and on quarterly basis. SIP is easier than lumpsum as it eases the outflow of cash over a period. Besides, SIP allows the investor get units at lower NAV in a volatile market, thus getting more units.

Investing in ELSS attracts entry and exit load. Every fund house has a different load factor, varying from zero to 2.5%. Exit load may be in the range of 1% to 1.5%. The load percentage is very less but for higher amounts the load turns out to be big. So be aware of the load factor while investing.

Tax benefits

Investors making investments in tax saving mutual funds can avail of a deduction of up to Rs 1 lakh under Section 88 from the gross total income. The tax benefit is 33% if the gross taxable income comes in the highest income tax bracket of 30%. In addition to this, the capital appreciation you get on your investment will be totally tax-free after one year. Also, the dividend distributed does not attract dividend distribution tax.

The two most important benefits, which differentiate mutual fund ELSS and conventional instruments, are holding period and the returns. Today's investors abhor a longer holding period and lesser returns if invested in PPF and NSC instruments. Investors should be ready to take certain amount of risk for higher returns and this risk is nullified when invested for three years.

Criteria

Currently, almost every mutual fund house has a tax saving scheme. So you have a gamut of options of various fund houses to select from. Now the biggest and the most challenging question: which scheme to go for?