4 Common Myths About ELSS Busted

  Author: Kundan Kishore

Equity linked savings schemes (ELSS) from mutual funds are very popular tax saving investments.  As with every popular investment, there are many common myths associated with them. Here are four common myths that you need to steer clear of to get the best out of these investments.

Myth

Low NAV funds are cheaper

Reality

Low or high Net Asset Value (NAV) has nothing to do with the scheme’s performance since it is based on percentage terms. If two ELSS with different NAVs give you 15 per cent return, in both the cases, your portfolio will go up by 15 per cent. The NAVs will grow in the same proportion.

Myth

Imminent dividend declaration will add to gains

Reality

In reality, a scheme’s NAV falls by the same proportion as the dividend distributed. A consistently outperforming fund may not declare dividends soon but may do so in the future. It may handsomely reward you in the long-run with its performance.

Myth

Recent outperformers are “safe bets”

Reality

Many people buy last year’s outperformer funds. However, the conditions that made the ELSS an outperformer may cease to exist subsequently. Check out ELSS performances over three and five year periods too.

Myth

ELSS is too complex

Reality

ELSS is just like any other equity mutual fund scheme except that it has a three year lock-in period. You can begin investing in this equity fund with an amount as small as Rs 500.

One way of ensuring that you make your investment a success is doing sufficient home work before making the investment. By being aware of the common myths related to ELSS, you do the right things with your ELSS.