Tax saving mutual funds: Important things to keep in mind while investing in ELSS

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March 19, 2021 5:23 PM

One should not hesitate from investing in MFs just because the market is low or is volatile. If you are one of those trying to get rich with short-term market changes, it’s always the right time to invest.

The new funds will be deployed towards expanding the reach of its financial products to the vast MSME segment across about 100 sub-industries spread across India. Representative Image

Among mutual fund schemes for tax benefits, Equity Linked Savings Scheme (ELSS) scores high. It helps investors not only in reducing their tax liability but also in growing their savings over the long-term. As the name suggests, ELSS investments are invested in equity markets.

If you are looking to save tax this financial year, there are several tax-saving MFs to choose from. However, there is not a single scheme that can be the best MF scheme. The returns from these schemes are not guaranteed and change over time.

Having said so, experts say one should not hesitate from investing in MFs just because the market is low or is volatile. If you are one of those trying to get rich with short-term market changes, it’s always the right time to invest.

ELSS comes with a locked-in period of 3 years. However, an investor can continue without exiting the scheme after the lock-in has ended, especially if the returns are low due to market volatility.

Financial planners say, whenever the market rises and the Net asset value (NAV) of schemes increases, investors can then plan to exit the scheme. Keep in mind, with ELSS, you get an upfront benefit in the form of tax savings, along with healthy returns if you stay invested for the long term.

For new investors, here are a few things to keep in mind while investing in ELSS:

  • You can invest in ELSS directly from any fund house or through mutual fund distributors.
  • Choosing the right ELSS is equally important, hence, it is better to take the help of an expert and not decide on your own, as investors usually are not equipped to pick their own mutual funds.
  • Similarly, note that looking at historical data and star-ratings alone is not enough to pick quality mutual funds, as success in the past does not guarantee future success.
  • Taking the help of an expert or advisor with a proven track record can help investors beat the markets.

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