What are the smart ways to invest in ELSS mutual funds?

Out of many options available to an investor, ELSS or Equity-linked Saving Scheme offers the shortest lock-in period. The ELSS mutual fund with the highest returns comes with higher risk as compared to other avenues like PPF, life insurance policies etc. Here is a look at smart ways to invest in ELSS mutual funds to minimise the risk of investing.

Grab the sip advantage

Don’t invest in ELSS at one go at the end of the year. These are equity schemes and monthly SIPs are the best way to invest in these funds. But if you start in January, you can fit in only 2-3 SIPs before the end of the financial year. “Ideally, a taxpayer should start an SIP in an ELSS fund from April through the whole financial year so that he does not get worried by the volatility,” says Raj Khosla, Managing Director of MyMoneyMantra.com.

Check long-term performance

Don’t be guided by the short-term performance of a scheme. Look at the long term record before investing. “Investors should not only look at 5-7 years performance of a scheme but also how long the fund manager has been at the helm of the fund,” says Aditi Kothari, Vice-Chairperson and Head of Sales and Marketing, DSP Investment Managers.

Assess portfolio attributes

Not all ELSS funds are alike. Some portfolios are focused on large-cap stocks while others have a good mix of large, mid and small caps. The portfolio mix also determines the risk and the rewards for investors. We have placed the top ELSS funds into three broad categories. Choose a fund that suits your risk appetite.

Don’t go for dividend option

Tax rules have changed in the past two years. Dividends are now taxable, as are long-term capital gains beyond Rs 1 lakh. While it is possible to manage and adjust the tax on capital gains, the dividends are added to income and taxed at normal rates. So, don’t go for the dividend option in your ELSS fund.

Keep monitoring performance

While holding equity funds for long periods is a good strategy and helps build wealth in the long term, investors…

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