If you are looking for an equity-linked savings scheme (ELSS) to reduce your tax burden, the sheer number of options may confuse you. Many investors simply opt for ELSS funds with the best return profile over a certain time period. However, this may not yield the best results. There are several types of ELSS funds, and it requires a nuanced approach to pick the right one.
Varied risk profiles
Unlike funds with a clearly defined investment universe—large-cap, mid-cap or even multi-cap—schemes in the ELSS category do not specify their investment focus. While these schemes have the flexibility to invest anywhere, most tend to follow a defined template. For instance, some funds take a distinct large-cap tilt with a limited exposure to mid- or small-cap stocks. Others prefer a higher exposure to the small-cap basket, with a modest large-cap tilt with a limited exposure to mid- or small-cap stocks. Others prefer a higher exposure to the small-cap basket, with a modest large-cap exposure, mostly intended to ensure liquidity in the portfolio. Some maintain a balanced portfolio, while a few adopt a more fluid approach, changing the portfolio mix according to market circumstances.
