ELSS Best of both the worlds

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is that which sustains in the long term and gives decent returns over a period of three years.

Do your homework before selecting a scheme, as there are certain things to be looked at. The most obvious is the brand image of the fund house in the market.

Short-term performances can be ignored up to a certain limit, but not the brand and the value it has in the market. There are several cases where a certain fund-house becomes a 'flavour of the month' and then after a while starts deteriorating as the fund manager cannot sustain the returns. Or, the returns were a function of some wild bets that worked. A strong brand is created only when there is a consistent reward that investors have got. Simply going by a brand without any track record can be dangerous, as investors in the early nineties learnt when they invested in a top-rung global fund management firm, only to see their investment value fall drastically.

The next thing to look at is the returns delivered by that particular scheme. Generally, the investors look at the short-term returns generated by the scheme, primarily monthly or three-month gain. However, they forget that the investment is for a span of three years. Thus they overlook the best performing fund over the long term.

Another important criterion while choosing an ELSS is the asset size. Should you choose a large asset sized fund or one which has a smaller base? Typically, it would seem that larger the asset size better is the fund. It might not be the case. Managing a large asset size can be arduous.

Some fund managers keep higher percentage in cash and cash equivalent due to larger size. Higher percentage of cash will lead to relatively less increase in the net asset value over a period of time because there is no benefit in holding cash. Hence, it is good to look at lower- to medium-size asset size as the returns will higher. A medium size would be in the range of Rs 200-500 crore and a lower size would be less than Rs 200 crore. For instance, the asset base of ING Tax Savings is just Rs 74.17 crore as on December 2007. When it was launched the fund size was barely Rs 1.3 crore, but has managed to give 53% returns every year over the last five years.