Are you buying ELSS to save tax this year? Our post highlights the downsides of these products and the risk involved. However, in case, you do want to go ahead with them, keep the following checklist in mind:

• Is the AMC reputable?: Go for known names in the Indian mutual fund space – Kotak, HDFC, Mirae Asset, etc
• Numbers: Of course, you will look at the shiny green returns numbers, but they are not the sole guiding factor. Check out the AUM; larger the AUM more popular the fund is. And of course, the expense ratio – the greater it is, the better you feed the AMC off your income.
• Holdings: Often people see mutual funds are products of their own, when in reality, they are just a bunch of stocks, also called holdings. In what companies does the ELSS invest? Are these large, mid- or small-caps? Investigating along these lines will help the investor get a picture of the risk involved. Large-cap stock-based ELSS’s can be somewhat less of a risk. Note the “somewhat”!
• Your previous ELSS’s: If you already have ELSS’s from previous years in your portfolio, then it is better to reinvest into the same funds for this year instead of buying new funds. Remember always – a cleaner, smaller portfolio is a healthier portfolio.
• Timing is key – early investment and late redemption: The tax year ends in March, but with stock-market linked products, you need to be invested as long as possible. Try to plan your tax savings and if need be, get ELSS, earlier in the year.
• Timing is key – late redemption: The lock-in period is 3 years, but these investments need as much time in the market as possible to bear fruit. Stay invested as long as possible till you cannot do without the money. Remember there is a long-term capital gain (LTCG) at marginal rate 10% (above Rs. 1 lakh) at the time of redemption.