How to choose Elss Fund

How to choose Elss Fund

Many times it happens that we get alarms to do certain actions. But we keep on hitting the snooze button, and at the last moment, we panic.

Does it happen to everyone? You bet it is. Everyone, just have a look at this chart. This chart talks about how many people invested in a mutual fund at the last moment to save their taxes.

Have a look at this chart. March 2019 figure says the mutual fund inflows for a taxable and mutual fund LSS was 2742 crores.

choose Elss fund

Why? Because people wanted to save taxes in 2019. Then starts the new financial year 1920. Then look at the April data. April is just 459 crosses.

And then towards the end, march 2020. Again people have woken up, right? What is the data figure? 1000 and 551 crores come next year.
March 21 again alarm savings, taxes. Same repeat telecast for 2022 as well.

So this is the whole reason why I should be writing an article at the beginning of the financial year and not at the beginning of the calendar year.

What is ELSS?

So let’s move ahead with what is ELSS. ELSS is a diversified equity mutual fund scheme that enjoys tax benefits under section 80. I’m sure everyone knows that. If I’m talking about section 80 C, the maximum reduction that you can get is up to one lakh 50 Rs0. 

What is the lock-in period here? 

The locking period will be a minimum of three years. In simple words, if I invest my money in an ELSS in an equity link saving scheme mutual fund and not be able to withdraw it for a minimum period of three years. 

A big question arises if I’m doing a Sip, then what? Every installment will have a lock-in for three years. 

So, as an example, right now we’re in September 2022. The installment for September is locked in for three years.

The installment of June will be locked in for three years from June and so on. I hope you have understood this point as well. 

If you want to ask me for a wrap-up of what Els insured. Insured is nothing but a Flexi cap fund which is coupled with taxation benefits for those who don’t know what’s a Flexi cap fund it means a mutual fund that can invest in large caps also which can invest in the mid-cap also which can invest in small caps also. 

Advantages of ELSS Fund

Now, let’s quickly understand why investing in ELSS can be beneficial. 

  1. The amount that you could save on taxes could be up to 46 Rs800. But of course, this amount is subject to you being in the 30% tax lab And assuming that you are investing entire 150 thousand rupees, the maximum amount now is the maximum amount. 
  2. The minimum amount is as low as RS500. So for those who give me excuses that I don’t have enough money after doing all the expenses, I’m hardly left with any money or excuse is gone. The minimum amount is just RS500. 
  3. The third one is that you get a higher potential return as compared to other ATC investments. So if I’m comparing equity earning savings key mutual fund with a taxable Abd, definitely ELSS will give you higher returns. 

Here you can find that there are three types of returns. The very first one is calendar return. The second one can be a trailing return, and another one can be a rolling return.

Just for you to give a quick explanation on that. Rolling return tells us the consistency of returns, right? And if you want to know about rolling returns in absolute detail, how to check the various website that you can refer to, you can refer to my course on the magic of mutual funds and there’s a coupon code there. 

1-AUM

That is assets under management, thumb rule, higher the better. 

I’ll give you a simple parallel example of that. So assume that you have gone to a chow party to eat some Lip-smacking beer, and you find eight to ten people sitting there. 

How do you choose which could be the appropriate stall to eat tasty beer?

The simple control that uses is the beer Galapagos which has a lot of crowds that beer might be tasty. That is what our logic says, right? I can apply for a mutual fund higher crowd gathered in a specific mutual fund higher crowd. 

In terms of money, that is nothing but AUM. So higher AUM is equal to I can say that fund seems to be more trustworthy, more popular. And that is why, while analyzing a mutual fund, one more thumb rule can be AUM. Simple words higher the better. 

2- Portfolio turnover ratio

It means that how many times the portfolio manager is churning the portfolio, how many times is he buying and selling and buying and selling the stocks in the mutual fund portfolio?

Interpretation number one can be that the portfolio manager is really alert and he’s trying to invest as per the current trends. But the second implication of that can be higher portfolio turnover. The expense ratio might be higher.

So personally, while checking any mutual fund, I prefer that the portfolio turnover ratio is comparatively lower.

3-Expense ratio

No need to even tell this what expense ratio rule is that the lower the better.

4- Sharpe ratio

I tell you in simple words what we mean by Sharpening ratio, it will be how much returns the mutual fund can generate over and above the risk-free return. Okay, risk-free return. 

Let’s say I’m saying that government securities give me 6% returns. And that over and above that return that we can calculate with the help of Sharpening Ratio.

What is the sum root? 

Higher the better. The last one can be the portfolio concentration year. You can see how much portfolio has been concentrated in the top ten stocks. 

So the concentration in a single stock or even in the top ten stocks should not be very high. but it should not be like a very lopsided one where the top ten stocks contribute 80% of your portfolio, and the balance contributes to just 20% of the portfolio.

 High return category

Quantax plan will be much more suitable for you. But if you are someone who believes that I am interested in more consistent returns I am interested in more of lower risk criteria, then for such people, Mirai as a tax saver can be much more suitable for you. 

So I hope in this entire section you have understood how to check value research online, how to pull various data points, and based on this chart, which mutual fund can be suitable for which category of investors?

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