VR Logo

In which category do ELSS funds fall?

Dhirendra Kumar talks about investing in ELSS funds and their classifications

I have two questions. First, in which category do ELSS funds fall? My second question is regarding payment defaults on commercial papers by big companies. What exactly do commercial papers mean?
- Aashish

An ELSS fund can belong to any category - large cap, small cap, value-oriented and so on. There is no such restriction regarding the fund category. Some ELSS funds have always been classified as large caps, while most have belonged to the multi-cap category. To gain insights into a fund's composition as well as its underlying portfolio, you can visit the specific fund's page on Value Research's website or the factsheet available on the fund company's website.

In my opinion, since ELSS funds come with a three-year lock-in, one must take some amount of risk while keeping a long-term outlook. It will help one get some meaningful returns from these funds. Given the recent performance of mid- and small-cap stocks, people investing in ELSS funds with mid- and small-cap exposure are now worried about their funds' performance. However, these funds generally take three-five years to perform better.

To answer your second question, commercial papers are money market instruments with one-year maturity, which are issued by companies. The ones issued by banks are called the certificate of deposits. They are like fixed-income instruments, wherein debt funds invest. Generally, when a commercial paper is considered to be safe and highly liquid, then only fund companies invest in it -as the maturity of these papers is usually for a year or so.