Re: ELSS MF investment
For all practical purposes, an ELSS fund as the same as that of a diversified equity fund, the only difference being that the investments into ELSS funds is locked in for a minimum of 36 months from the date of investment.
As the value of the portfolio holdings increases, if an investor opts for the dividend pay out option, the Fund at its discretion, will distribute some part of the profits booked back to the investor - this is called 'Dividend'. To the extent of the dividend paid out, the NAV falls. In growth option, no dividend payouts are made, one'll see only the capital appreciation as time passes by.
Let's take an example: the initial fund corpus is Rs.1000/- (a unit at par is Rs.10/- and there are 100 outstanding units). And it increases to Rs.1300/- in an year, so the NAV would be Rs.13/-. The fund might take a decision to distribute 10% as dividend - that is 10% of the Unit at Par i.e., Rs.10/- turning out to be Rs.1/- per unit. So an investor under the dividend payout plan having 5 units in that Fund will get 5*Rs.1/- as dividend. Next to the dividend payout, the NAV falls to Rs.13/- minus Rs.1/- i.e., Rs.12/-.
In case of the Growth option of the same scheme, no dividend payouts are made; and the NAV remains at Rs.13/- itself; and grows along with the portfolio holdings.
So in the above scheme, irrespective of the option an investor has chosen, the return tends to be Rs.3/- per unit, or in other words 30% annualized gain.