Best ELSS or tax saving mutual funds to invest in 2019

The tax saving season has just started with the New Year. Many mutual fund investors are hunting for the best Equity Linked Saving Scheme or ELSSs to save taxes under Section 80C of the Income Tax Act. As you know, investments in tax saving (or planning) mutual funds qualify for tax deductions of up to Rs 1.5 lakh in a financial year under Section 80C. 

Here are a few pointers before you proceed: one, do not invest in ELSS just because they have the potential to offer superior returns over a long period. You should invest in ELSS only if you have the risk appetite to invest in an equity scheme. Equity, as you would know, is risky; it can also be volatile in the short term. Of course, it has the potential to offer superior returns over a long period. However, that alone need not be your criteria to invest in ELSSs. 

If you don’t have the risk appetite, do not invest in them. Just remind yourself that they invest mostly in stocks. Sacrifice those extra returns and be happy with the traditional favourites like Public Provident Fund (PPF), 5-year bank deposit, and so on. 

Two, you must have heard the sales pitch that ELSS funds have the shortest mandatory lock-in period of three years among the tax-saving investment options available under Section 80C. Yes, tax saving mutual funds have the mandatory lock-in period of only three years. However, that doesn’t mean you should invest in them with a horizon of just three years in mind. 

Since they are essentially equity mutual fund schemes, you should invest in them with an investment horizon of at least five to seven years. 

Finally, include ELSS in your overall financial plan. They are ideal to meet your long-term financial goals. You need not rush to redeem them as soon as they complete the mandatory lock-in period of three years. You may hold on to these schemes as long as they are performing well.