Of tax-saving investments: here’s how to pick the right ELSS fund

livemint.com:

Fund performance: Look for a fund with a solid long-term track record across various market cycles. Consistent performance is a good indicator of the fund’s reliability. Avoid selecting funds based on short-term performance.

Look for three-, five-, seven- and 10-year period returns. A fund which has performed well over all periods would indicate consistent performance. Investment framework: Opt for a fund that has a well-defined investment framework.

Passive funds: With passive equity funds outperforming active funds in the last few years, there is a strong argument to invest in passively managed funds. You may opt for passive schemes which track indices like Nifty 50 or Nifty LargeMidcap 250 Index. There are fund houses that have now started offering passive ELSS options.

Check expense ratios: High expense ratios can eat into your returns. Compare the expense ratios of different ELSS funds to choose a cost-efficient option. Market cycles: Avoid selecting funds based on short-term performance.

Fund managers may have different styles (like growth, value) and a style that has worked recently may not work in the future. Also, if the fund is managed with an aggressive investing style, it may not suit some investors’ risk-profile, while a conservatively-managed fund would be more suitable for some investors. Diversify: If you already invest in equity mutual funds other than ELSS, you may want to diversify for your ELSS investments.

You can opt for a different fund house or a different style of investing for your ELSS. ELSS funds are typically marketed near the end of the year as tax-saving instruments. Choosing between SIP and lumpsum depends on your risk-tolerance.