Aditya Birla Sun Life ELSS Mutual Funds

Investment Objective

Aditya Birla Sun Life ELSS Funs is an open-ended equity mutual fund that aims at creating long-term capital via a portfolio with a target allocation of 20% debt, 80% equity and money market securities. 

Risks Involved in Aditya Birla Sun Life ELSS Mutual Fund

Every mutual fund or stock has some kind of risk associated with it. Aditya Birla Sun Life MF ELSS possesses moderately high to high market risk as compared to other balanced and debt funds. However, when the prices of underlying stocks change, the value of the fund also increases or decreases. 

The stock prices may be influenced by the following factors:

• Interest rates
• Government policies
• Exchange rates
• Tax laws 
• Price and volume changes in the stock market, and 
• Other developments. 

In terms of a well-diversified portfolio, such funds carry less risk than pure mid-cap or small-cap funds and theme or sector-based funds. Besides, if investors stay invested for a longer period, the inherent risks may average out. Investors may mull over their risk tolerance before finalising a scheme for investment.

Return Potential of Aditya Birla Sun Life ELSS Mutual Fund

Aditya Birla Sun Life Mutual Fund ELSS returns in the form of regular dividends and capital appreciation. 

Capital appreciation is an upshot of the increase in the underlying stock prices over a defined investment horizon. The MF offers a lock-in period of three years, which assists the fund manager in taking decisions on asset allocation without worrying about frequent fund redemptions. 

Investors can adopt this holistic approach and earn higher returns in the long run. In the past, ELSS funds have delivered average returns of around 12% to 15% for more than five years. Nevertheless, Aditya Birla Sun Life MF ELSS funds do not ensure assured returns. Plus, the fund performance may differ from one period to another. 

If you want to fuel up your returns, consider adding a few mid-cap or small-cap funds to the overall portfolio.

Who Should Invest in Aditya Birla Sun Life ELSS Mutual Fund?

Investing in Aditya Birla Sun Life MF ELSS could be an ideal investment option for investors — 

• Looking to invest funds for at least three years
• Earning high-income seeking tax relief
• Planning to invest for long-term goals, including higher studies, child’s education, and retirement
• Seeking higher returns 

Things to Consider Before Investing in Aditya Birla Sun Life Tax Saver Mutual Fund

Given below are some pivotal factors that every investor must ponder over before investing in Aditya Birla Sun Life Mutual Fund ELSS or any MF scheme: 

Performance of Mutual Funds over Time

Often, people who are investing for the first time check the chart and are attracted to funds that top the list. However, the idea is to adopt a holistic approach to how a mutual fund has performed in the last few years. Preferably, the time horizon you must consider is 1 year, 3 years, 5 years, and since its establishment. Always aim for funds which have offered good returns over mutual funds that provide windfall gains. 

ELSS mutual funds are driven by market conditions. Therefore, it is crucial to determine their performance during the economic downturn. Funds that have performed well in the market demonstrate the expertise of their fund managers. Hence, investors can prefer such funds. 

Opt for Fund Diversification and Assess the Risk Associated with the Fund

Checking the fund performance is not enough. You must also assess the risk associated with the fund. The prime attribute of any ELSS is to put money into various equity tools. Nevertheless, all ELSS has a specific and distinct investing pattern. For instance, investing in a mix of mid-cap and large-cap equity or small-cap funds.  

If you are risk-averse, you should invest in large-cap equity as they are relatively safe and stable investments. However, if you are an aggressive investor and willing to take risks, then you can choose mid-cap-oriented funds — which offer higher returns but are highly prone to extreme losses in economic downturns. 

Some funds invest a majority of their money in their top 10 stocks, while others have evenly distributed portfolios. Pick an ELSS fund whose portfolio resonates with your risk profile and personal investment strategy.

Stay Invested for a Long Run

The idea is to view ELSS funds as an efficient wealth-creation tool and not just as a tax-saving tool. Try to stay invested beyond the lock-in period of 3 years in funds and set a target of yielding higher returns in the long run. 

Aim for Growth

ELSS funds are supposed to offer growth and dividend options. Dividends may render returns in certain intervals. But the growth option fund accumulates and re-invests the dividends. It, in turn, provides the additional advantage of compounding the returns on your investments. 

Turnover Ratio of the Fund

A fund’s turnover ratio is defined as the number of times a stock holding is replaced. Usually, the ratio is represented in the form of a percentage for one year. A fund with a turnover ratio of 50% substitutes 50% of its stock holdings in a year. 

The definition of a good turnover ratio is entirely subjective and depends on the personal outlook of each investor. A higher ratio may represent a fund managed more aggressively to produce higher return rates. 

While you are choosing the right ELSS, pick a fund whose turnover ratio resembles your investment objectives. 

Tax on Aditya Birla Sun Life Mutual ELSS Funds

Under Section 80C of the Income Tax Act, ELSS funds are eligible for tax exemptions if the investment amount in each financial year doesn’t exceed ₹ 1,50,000. Moreover, if the capital gains on investments are less than ₹ 1 lakh in a year, the interest earned through ELSS funds would be tax-free.