Suitability of ELSS Schemes

Suitability - Meaning

In the case of mutual fund investments, suitability is understood by the meaning that it is a situation where the investment strategy of the fund suits the objectives and requirements of the investors. While selecting mutual funds for a portfolio, it is essential to know whether the fund is suitable for your needs or not.

Suitability of ELSS on the Basis of Risk-Bearing Capacity

The ELSS mutual funds have minimum 65% of the investments in the equity and equity-related securities, which make them highly exposed towards the high-risk investments. On the flip side, it has investments in the debt instruments as well providing diversification of the funds to provide security of the funds. Accordingly, the investors having aggressive or moderate risk profile should consider the ELSS schemes for their portfolio.

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Suitability of ELSS on the Basis of Investment Tenure

Investment tenure is the time horizon in which the investor tends to stay invested in the fund. ELSS has a lock-in period of three years which is mandatory for the purpose of availing the deduction under section 80C. According to this, the investors having a minimum investment horizon of three years or even more should opt for this fund. ELSS has investments in the equity securities which provide long-term benefits to the investors, and thus ELSS is suitable for those having long-term tenure.

Suitability of ELSS on the Basis of Investment Objective

ELSS funds are the instruments that provide the 80C deduction under the Income Tax Act and help in reducing the tax liability. Hence, the investors who are required to pay taxes on their income and looking for the tax-saving solutions while earning capital growth should opt for the ELSS schemes.

Conclusion

As per different suitability factors, the ELSS funds are suitable for the investors with the following traits:

Those who are looking for tax-saving instruments while gaining deduction benefits under section 80C.
Those who can stay invested for a longer tenure.
Those who have moderate to high risk-bearing capacity.
Though the fund bears high-risk, the investors gain high-yielding annualised returns in the range of 12% - 15% which help them to attain capital appreciation.