Firstly, do you know Mutual Fund can help you to save tax also apart from probability of higher returns on investment? Equity Link Saving Scheme or ELSS is the type of mutual funds which can help you save tax upon investing and under section 80(C) of Income Tax Act. One can invest maximum Rs. 1.5 lakhs in ELSS per annum & save tax upto Rs. 46,800/-.
Investment in ELSS fund has lock-in period of 3 years from the date of investment. In case of SIP, every instalment of SIP gets a lock-in of 3 years from the date of purchase. ELSS invests minimum 65% of the fund into equity shares and/or equity related securities.
Every individual faces the challenge of selecting the right ELSS fund every year. Although best way to invest is with having an advisor, still one can do primary analysis based on following parameters:
Performance of the Fund
How consistent the fund is performing? What are the long term returns of the fund? These are very crucial question one should ask at the time of selecting the best performing fund. Just 1 year best return cannot be the sole criteria for the fund selection.
Who is managing the fund?
Fund manager & the investment philosophy play a very important role. The ability to generate alpha i.e. superior return then the market depends on these two factors. The track record of fund manager or the fund house reflects many important points. The type of stocks they will select & on what rational will be decided well in advance. Detail study of these can help an investor to stay away from the strategies which does not suit his requirement or risk appetite.
How big is the fund size?
This reflects confidence of investor in the fund manager and the AMC. If the fund size is bigger, power of the fund manger increases many fold. They have flexibility of choice & quantum of fund due to size of investment. The performance of the smaller fund gets affected due to frequent redemption as it becomes mandatory for the fund manager to redeem money from even the high conviction stocks, to fulfil the refund obligation.
Volatility Management
Consistency of the fund performance is very important, because Mutual Fund is used as a tool, to achieve some important financial goal. If the scheme is too volatile, it will make goal planning very difficult as one cannot anticipate the ideal rate of return at the time of goal maturity. Thus volatility is very important factor to manage.
Study of Portfolio
Current portfolio of the fund gives a lot of clarity & indication about the investment style and philosophy of the fund. Is it too much concentrated on a sector or group of companies? What is the holding weighted average of top 5 holdings? Careful study & analysis help investor to avoid some grave mistake as market has cyclical nature and no strategy work in all the seasons.
To know more about ELSS Mutual Fund and to invest in it you can contact us on 9879956949 or email us on hardik@niveshplanner.com.