What are the key factors that should be considered for ELSS investments in 2024?
Equity Linked Savings Scheme (ELSS) investments are at the forefront of equity mutual fund investments in India. The sub-category of equity funds contributes close to 9.08% to the total Assets Under Management (AUM) of the equity mutual funds category. The net AUM of ELSS funds was around ₹ 2.04 lakh crore until February 2024. Read on to know the factors that investors must consider while making an ELSS investment.
What are ELSS funds?
Equity Linked Savings Schemes (ELSS) funds are equity mutual funds that have the special feature of helping investors save tax. These funds offer an income tax exemption of up to ₹ 1,50,000 from the investor’s annual taxable income under Section 80C of the Income Tax Act. The tax efficiency of ELSS funds helps investors grow their equity fund returns considerably.
Key factors to consider before making an ELSS investment in 2024:
Here are a few features of ELSS mutual funds that you must consider before making an ELSS investment in 2024:
- ELSS mutual funds have a lock-in period: This lock-in period is generally three years long, and ELSS funds have this restriction to help the investor make the most of their Section 80C deduction that they offer. Investors, therefore, cannot withdraw their funds before the maturity date.
- Investors should consider the expense ratio charged by the fund: ELSS funds charge an expense ratio from investors in return for offering fund management services. Investors must compare various ELSS funds and their respective expense ratios to decide on the fund of their choice. A fund’s expense ratio has an effect on the overall returns. Investors must, therefore, choose funds that charge a lesser expense ratio.
- They must conduct a risk-return analysis before investing: Investors should thoroughly analyse the overall risk of their ELSS investment before investing. They must analyse their risk tolerance and risk appetite to do the same. Investors must also calculate the future returns of their ELSS investment by using a mutual fund SIP calculator.
- Investors should compare multiple funds by calculating their returns in advance: SIP investment calculators can also help investors compare multiple ELSS funds. Investors can use these free, online tools to calculate the returns offered by multiple ELSS mutual funds and decide on their preferred fund. This can also help investors plan for their ELSS returns in advance.
- They must also read up on the fund’s management: ELSS mutual funds are actively managed mutual fund schemes that employ a fund manager. It is prudent for the investor to read up on the fund’s management to learn more about their investment style and their previous performance. It also helps to read more about the fund’s previous performance before investing.
Any investor who has considered the factors mentioned in this article can hope to earn stable, risk-adjusted returns through their ELSS investments. Investors must be sure to use an online SIP calculator to plan their ELSS investment in advance. They can also use online SIP calculators to reassess their ELSS investments periodically.
