What assets an ELSS fund can invest in?

According to AMFI “Equity-Linked Savings Scheme (ELSS) is an equity mutual fund investment that invests at least 80 percent of its assets in equity and equity-related instruments”. Assuming an ELSS fund wants to limit its exposure to equity up to the minimum required 80%, what other assets an ELSS fund can invest in with the remaining 20%? are they allowed to invest in gold?

Rule 5 of the Equity Linked Savings Scheme 2005, mentions about the assets which an ELSS fund can invest in -

Investment of Equity Linked Saving Funds

5. (a) The funds collected under a plan shall be invested in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investment may also be made in partly convertible issues of debentures and bonds including those issued on rights basis subject to the condition that, as far as possible, the non-convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of twelve months.

(b) It shall be ensured that funds of a plan shall remain invested to the extent of at least eighty per cent in securities specified in clause (a). The Unit Trust and Mutual Fund shall strive to invest their funds in the manner stated above within a period of six months from the date of closure of the plan in every year. In exceptional circumstances, this requirement may be dispensed with by the Unit Trust or the Fund, in order that the interests of the assessee are protected.

(c) Pending investment of funds of a plan in the required manner, the Unit Trust and Mutual Fund may invest the funds in short-term money market instruments or other liquid instruments or both. After three years of the date of allotment of the units, the Unit Trust or Mutual Fund may hold up to twenty per cent of net assets of the plan in short-term money market instruments and other liquid instruments to enable them to redeem investment of those unit holders who would seek to tender the units for repurchase.

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I appreciate your response. Does it mean ELSS funds can’t invest in gold? Is there any kind of fund that is allowed to invest in both equity and gold?

Yes, it seem that the ELSS fund can’t invest in gold. Checking the asset allocation of all the ELSS funds also points in this direction -

You will have to look into Multi-Asset Funds as those are allowed to invest in gold, equity, and debt.

Also, you could alternatively look into the All Weather Investing smallcase as that also does something similar.

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