TAX-SAVING MUTUAL FUNDS GAVE UP TO 60% RETURNS IN 1 YEAR! WILL THE TREND CONTINUE?
ELSS tax saving mutual funds have been one of the most preferred tax saving investments under Section 80C of the Income Tax Act, 1961. These mutual funds qualify for tax deduction under Section 80C of up to Rs 1.5 lac. As an investor, you can save up to Rs 46,800 by investing in Equity-Linked Savings Scheme (ELSS). What makes them quite desirable is their lowest lock-in tenure against any other tax saving investment options such as Bank fixed deposits (FD) and Public Provident Funds (PPF) that have a lock-in duration of 5 and 15 years respectively. What’s more these tax saving mutual funds have historically offered double digit returns to its investors when invested for a long duration. Why you may wonder. It’s because ELSS mutual funds invest a majority of their portfolio, a minimum of 80% of their assets in equity and equity-related securities. The higher allocation to equity acts as an opportunity for these mutual fund investments to fetch significant returns when invested for a prolonged duration.
ELSS funds are considered to be the best bet for investors looking to grow their wealth while saving on their tax outgo. Thus, these funds offer the dual benefit of capital appreciation along with tax-saving attributes. These funds are also known to offer the highest returns in the tax-saving category. In the last year, ELSS funds have successfully provided average returns of around 25% per annum! That’s not all. The best performing ELSS funds have provided annual returns around whopping 60% per annum. That’s a huge number. At the same time, the worst performing ELSS mutual funds have offered annual returns around 11.5% p.a. in the same period.
But, are these returns sustainable? Experts believe that as long as the stock markets continue to rally, these tax-saving mutual funds will continue to offer similar returns. However, there is no assurance that similar returns will be achieved in the next quarter. Just like any other type of mutual funds, specially equity funds, ELSS investments are market-linked. Out of the blue significant returns are never sustainable. The significant returns in this category is a result of rapid reversals in the stock markets last year owing to the global pandemic.
Financial advisors advise investors to keep a cynical return expectation from their mutual fund investments to avoid chaos later and instead plan their investments with an ideal return expectation in mind. And, if you get higher returns on the way, enjoy them by fulfilling your financial objectives earlier.
Although ELSS funds have a lock-in period of just three years, experts recommend investors to stay invested for a longer duration, say ten years or more. They advise their investors to link their ELSS investments with long-term financial goals so that they do not get tempted to exit the markets at the slightest hint of volatility. Happy investing!