Best ELSS Funds for 2024

The asset allocation of an ELSS fund, or equity-linked savings plan, is composed of 65% investments in equities and equity-linked assets, with a small amount of exposure to fixed-income instruments. This mutual fund program features a three-year lock-in term, in contrast to other schemes.

According to the terms of Section 80C of the Income Tax Act of 1961, it is the only kind of mutual fund that is deductible from taxes. Here, you may save up to Rs. 46,800 a year on taxes alone and receive a tax refund of up to Rs. 1,50,000.

Top 5 ELSS Funds to invest in 2024

Who should opt for ELSS?

1. Investors Seeking Tax Saving Opportunities

Any taxpayer who is willing to assume the risks involved with an equity-related tax-saving tool may use ELSS funds. This is the only three-year plan that qualifies for tax advantages under Section 80C.

2. Investors with a long term outlook

ELSS funds, as was already mentioned, have a lock-in term that guarantees you will remain an investor in the fund for a minimum of three years. Furthermore, these funds often perform far better when you keep seeing the growth potential even after the lock-in period.

Factors to be Considered while Investing in ELSS Funds

1. Lock In period

As previously indicated, ELSS funds have a lock-in time; the fund's minimum lock-in duration is three years. It is not feasible to redeem the assets before the minimum three-year period that the investments must be maintained. Consequently, investors in these funds will need to take this into consideration. 

2. Returns of the Funds 

Because ELSS funds are entirely dependent on the performance of the underlying stocks, you should be aware that they do not offer guaranteed returns. All other things being equal, a longer investment horizon can produce higher returns than any other tax-saving option.

3. Investment Duration

You need to have a longer investment horizon—possibly more than five years—in order to invest in ELSS funds. The equity exposure of ELSS funds necessitates a longer investment horizon in order to reduce market volatility.

Major Advantages

Small Lock in Period: ELSS mutual funds have the lowest lock-in period of any other tax-saving investing option, at three years. For instance, PPF requires a minimum of 15 years to mature. Tax-saver fund plans are therefore more liquid.

Higher Return Generation Capacity: Contrary to ELSS mutual funds, other tax-saving investment options, like bank fixed deposits and PPF, generate a fixed income. Conversely, ELSS funds invest in stocks of different companies, and their NAV fluctuates accordingly. An uptick in prices of such underlying securities can yield sizeable returns for investors.

Tax Benefit: Investments up to Rs.1.5 lakh are eligible for tax deductions as per the provisions of the Income Tax Act.

What are the Risks Involved Investing in ELSS Funds?

1. Liquidity Risk: In mutual funds, liquidity risk is the likelihood that investors won't be able to withdraw their money without seeing a decline in value. Investments made in ELSS funds are locked up for a period of three years. During the lock-in period, the investor is not permitted to redeem or transfer their ELSS investment.

2. Market Risk: The likelihood that investors would lose money as a result of the market's poor performance is known as market risk. Stock market values can be negatively impacted by a variety of factors, such as a recession, political unrest, negative market sentiment, and more. 

A minimum of 80% of the assets in equity-linked savings plans must be allocated to equity securities. The portfolio of an ELSS fund is therefore vulnerable to market risk.

Here are the best ELSS Fund in 2024