elss	27,100
elss mutual funds	22,200
tax saving mutual funds	14,800

As the stock markets are doing well, Indian investors are willing to explore equity investment options also over and above keeping their money in assured returns or conventional schemes like bank fixed deposits, etc. Thanks to the increased investment awareness about mutual funds which helped people understand how higher returns can be achieved by investing in equities, provided some risks are taken.

Investors also have the option to invest in mutual Fund schemes which offer tax benefits. These are known as ELSS funds which help you not only save taxes but also build your wealth at the same time. ELSS mutual funds are also known as tax saving mutual funds.

This is possible with the help of ELSS mutual fund investment. These are diversified equity mutual funds which primarily invest in stocks of listed companies according to the investment objective of the fund. Typically in an ELSS fund, the fund manager selects stocks from various market capitalization, like large, mid and small cap from various sectors. These mutual fund schemes aim to maximise capital appreciation over the long term. Investments upto Rs 150,000 in ELSS mutual funds during a financial year is eligible for deduction from your total income, under section 80C of the Income Tax Act 1961.

One important point is that you can invest in ELSS by way of one-time investment and also through SIP. Please note that in SIP, each instalment is locked in for 3 years from their respective investment dates.

How to Evaluate a Good ELSS Mutual Fund?

In order to make an informed investment decision, one must evaluate these points carefully for choosing the good performing ELSS mutual funds –

Fund Returns

It is ideal to compare the fund’s performance with that of its peers in the same category. Over and above the same, the fund should also beat the benchmark returns. Therefore, before making a firm decision to invest, you must check these two criteria for fund selection.   However, it must also be noted that the past performance of any mutual fund schemes  in no way, an indicator of the future returns. The future returns are dependent entirely on the market movements as well as the fund manager’s ability to generate alpha.

Expense Ratio

Expense ratio helps you understand how much of your investment goes towards managing the ELSS mutual funds after adjusting for the expenses (known as total expense ratio). A lower expense ratio essentially means higher returns. So, if there are two identical tax saving mutual funds with a similar track record, it is advised to choose the fund which has a lower expense ratio.

Financial Ratios

Consider various parameters such as standard deviation, sharpe ratio, alpha, and beta to analyse the performance of the fund can also be looked at. A fund is risky if it has higher standard deviation (volatility) and beta. Therefore, tax saving mutual funds with lower standard deviation and beta can be considered. If you want to find these ratios, do refer to the scheme fact sheet available on the AMC website.

ELSS mutual funds are an ideal investment option for investors looking to expand their horizon to diversify their investment portfolio, while enjoying the tax saving benefits.