Why ELSS Funds have Become the New Favorite among Indians – Experts View


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ELSS Funds
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Off late, after the markets have behaved volatile and the same has caused tremendous wealth destruction in the past one and half year. Thus, every investor needs to revisit his/her portfolio and take tactical decisions that may suit his/her objective and align the best ELSS funds to suit individual risk appetite and horizon.

Amidst the small and mid-cap crash, one segment that has seen a significant increase in the interest of the investors is the ELSS space. ELSS is nothing but the Equity Linked Savings Scheme, whereby the fund manager seeks to invest in equities and related securities to generate long-term capital. Besides, these funds also provide tax benefits under section 80C of the Income Tax Act and provide benefit to the tune of Rs 1.5 Lakhs every year.

One of the reasons why ELSS is an excellent tool for investing is because it is equity-oriented schemes. While selecting any equity fund, the primary feature an investor sees is the returns generated and keeping that in mind every investor should look for funds that are well diversified. We believe ELSS is a very well-articulated strategy and over long-term, it translates to superior risk-adjusted performance and also reasonable absolute performance. ELSS doesn’t care about the short-term underperformance that may arise due to its excellent risk-adjusted performance and long-long-term returns.

One of the features of best ELSS funds are that the money remains locked in for three years. Now assume you invest the same money in an open-ended fund, investors tend to panic, you can take your money out, but in ELSS the withdrawal is not possible which in turn becomes reasonably rewarding. In ELSS, investors get stuck for three years, which eventually ends up being normal.

We believe with the kind of volatility witnessed in the market due to the geopolitical tension, trade tension and domestic factors it is essential that investors remain disciplined to the funds that suit the investors’ risk appetite, and horizon for the investment objective. Thus, the investors should stay invested for a long-term despite facing short-term fluctuations. This has resulted in the ELSS segment seeing a renewed interest from the investor’s community.

Following are the Best ELSS funds recommended by Orowealth Advisory

  • DSP Tax Saver Fund – Direct (G)
  • Axis Long Term Equity Fund – Direct (G)
  • Tax Advantage (ELSS) Fund – Direct (G)
  • Aditya Birla Sl Tax Relief ’96 – Direct (G)

Let us now look at each of the funds individually.

DSP Tax Saver Fund

Investment Objective

The fund seeks to generate medium to long-term capital appreciation from a diversified portfolio that comprises of equities and related securities. The objective is also to enable the investors to avail income tax deduction as per the law.

Our view

The fund is a good bet in the segment owing to its consistent performance across 1Y, 3Y, and 5Y period. Also, the fund has a higher risk-adjusted return than benchmark thereby rewarding investors well.

Axis Long Term Equity – Direct (G)

Investment Objective

The fund seeks to generate long term capital growth from a diversified portfolio of equity and equity-related securities. The fund primarily invests in companies that offer steady growth and a sustainable business model.

Our view

The fund is a good bet in the segment owing to its consistent performance across 1Y, 3Y, and 5Y period. Also, the fund has a higher risk-adjusted return than benchmark thereby rewarding investors well.

IDFC Tax Advantage (ELSS) Fund

Investment Objective

The fund seeks to build a diversified portfolio of stocks that have strong fundamentals and are available at reasonable valuations.

Our view

The fund is a good bet in the segment owing to its consistent performance across 1Y, 3Y, and 5Y period. Also, the fund has a lower risk compared to the benchmark.

Aditya Birla Sl Tax Relief ’96 – Direct (G)

Investment Objective

The fund seeks to generate long-term capital growth by investing 80% of fund corpus in equity and related securities. The fund employs a bottom-up stock selection approach while scouting for the securities. The fund was converted into an open-ended scheme from July 1999.

Our view

The fund is a good bet in the segment owing to its consistent performance across 1Y, 3Y, and 5Y period. Also, the fund has a higher risk-adjusted return than benchmark thereby rewarding investors well.

Conclusion

Investors should remember that ELSS funds have the potential to generate superior returns but at the same time comes with higher risk given majority exposure to equity. Thus, an investor should opt for ELSS only if they have the risk appetite to invest in an equity scheme.

Also, every individual should include ELSS investments in the overall financial plan as they are ideal to meet your long-term financial goals. Also, an investor doesn’t need to redeem them as soon as they complete the mandatory lock-in period of three years, and he/she can hold these schemes as long as they are performing well.

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Rahul Thakur

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