Equity Linked Savings Schemes (ELSS) offer tax savings under Section 80C of Income Tax Act. But apart from tax savings, the performance of these funds in 2014 was eye catching. The average ELSS returns in 2014 was around 50%, almost 5% higher than average diversified fund returns. Fund managers say that three year lock in period in ELSS helps them to stick to high conviction ideas that can generate higher long term returns without worrying about redemption pressures. The performance of ELSS funds compared with diversified equity funds in 2012 to 2014 period seem supports this conviction. In each of these years ELSS funds on average as a category outperformed diversified equity funds. The chart below shows the annual returns of diversified funds from 2012 to 2014.
