Last Chance ELSS

ELSS =Equity Linked Savings Scheme ,is a special category of mutual funds that invest predominantly in stocks. They are very comparable to diversified equity funds. The only differences between regular diversified equity funds and ELSSs are the 80C tax benefits on investments upto 1 lakh and the lock-in period of 3 years,incidentally the least among all 80C tax-saving avenues. It means that once you invest in an ELSS , you cannot withdraw your investment for a period of 3 yearsHowever,the DTC proposes to phase out the tax breaks on ELSS , so this avenue may be closed in the coming years.But, you can still invest in it this year and get tax breaks.

The best ELSSs have not done too badly during downturns and have given excellent returns in boom times.The reason has been the lock-in period. These funds have not suffered due to large scale redemptions when the market sentiments have tanked.Moreover, fund managers  keep a portion of the mutual fund corpus, around 7-10%, as cash,even in good times, so that they can meet all redemption requests. This cash is invested in very short term debt investments, generating meager returns. This impacts the overall returns of the mutual.Since the fund manager of an ELSS knows that  funds cannot be withdrawn for 3 years, he can invest all the funds in equities and keep less money as cash and provide good returns in the long term. Read more of this post