Many investors invest in Equity-linked Savings Scheme (ELSS), so also know how to get maximum returns.
As the current fiscal year ends, many investors are looking for last-minute tax savings in Equity-Linked Savings Scheme (ELSS), usually selecting the best-performing or most popular ELSS funds. This strategy does not address the purpose for which it is designed for purposes other than merely helping to save on taxes. Here are some rules that investors should follow when investing in ELSS funds.
Invest long term
It is commonly seen that investors withdraw their ELSS investments after the completion of the mandatory lock-in of three years. Experts say that although ELSS funds have a lock-in period of three years. Investors should invest 5–7 years longer to get desired returns. Once you stay invested for a long time you will be able to see an entire market cycle (both below and above levels), so you can get attractive returns. This is essentially necessary when you invest in ELSS funds when the markets are all at a higher level than what we are seeing now.
Invest in funds that complement your existing portfolio
When choosing stocks for investment, ELSS funds are not required to follow any market cap criteria. Their investment approach is like a Flexicap fund as they have the facility to invest anywhere. Like flexi-cap equity funds, most ELSS funds offer maximum exposure to mid- and small-cap stocks with large-cap stocks. But there are some ELSS funds that prefer mid and small cap stocks. Therefore, while selecting ELSS funds, it is very important to find out how these funds will complement your existing funds. If you are already investing in different equity funds, having a large-cap ELSS fund will only overlap your portfolio. So if your current portfolio is already heavy on largecap funds, then it is advisable to go for a mid-cap heavy ELSS fund, so that it will complement your existing portfolio.
Higher Return: Invest in ELSS, FD or time deposit scheme for best returns with tax saving
ELSS funds should not be used for long term goals
Although ELSS funds are for long-term investments, experts are not in favor of using these funds to meet long-term goals. Rather, experts say that open-ended equity funds in the defined category should be used for better target planning as you can withdraw these funds whenever needed. ET Wealth quoted Vidya Bala, co-founder and head of research at PrimeIntervision.in, as saying that unlike other categories of open-ended funds where one can mix styles and strategies, ELSS funds clearly have The strategy described is not. It is therefore difficult for an investor to know exactly what he is adding when raising ELSS funds.
In open-ended funds, investors can exit rapidly if their performance fails to match their benchmark. Some experts say that ELSS funds should be used as mandatory equity allocations to control impulsive behavior and force them to stay invested in equity for long periods.
