ELSS funds are excellent prospects for investors. They are the only way to get good equity exposure while saving tax. All tax-saving investmentsSince its inception, equity linked saving scheme (ELSS) funds have performed well in comparison to most other types of diversified equity funds. Over the last three years, the average returns of these funds have been 23.35 per cent per annum, corresponding to a total gain of 87.7 per cent over this period. During this time, mid and small cap funds have done better, with 30.7 per cent gains, but other types of diversified equity funds have lower returns than ELSS funds. These funds also beat the Sensex and the Nifty by a large margin. “The primary reason for this outperformance is the generally higher allocation to mid and small cap stocks that the fund managers of ELSS funds have maintained, by and large. The equity markets have done well over this period, and investors in these funds have reaped the rewards,” explains Dhirendra Kumar, chief executive of the Delhi- based Value Research.
have some lock-in period but ELSS funds have the shortest one at three years. Three years is ideal because it is just long enough to enable investors to ride out short-term volatility and get good returns. “This positive experience means that ELSS funds are an excellent gateway investment for investors to get a nice taste of the returns that equity funds are capable of,” adds Kumar, pointing to the fact that once an investor understands this, it just doesn’t make any sense to lock up one’s funds for 15 years in PPF. “After any mandatory deductions are accounted for, investors should generally allocate the entire discretionary amount left in the ?1.5 lakh limit under Section 80C into ELSS funds,” he suggests.
“Judging ELSS schemes is slightly different from other ones as they typically have a lock-in period and we need to look at returns over this duration at the minimum. These funds invest in equity and are attractive given that they carry Section 80C benefits. Therefore, the implicit
returns would be higher than what appears in nominal terms when we see their performance,” says D.R. Dogra, MD, CARE Ratings, who has over three decades of varied experience in commercial banking and extensive knowledge about the functioning of the corporate sector. “Most of these schemes have done well in the last year as this was a time when the equity market has done very well given the increased sentiment under the new government and the affirmative steps taken. While some have given returns over 50 per cent, the general returns have been around 20 per cent. Most of the leading funds have such schemes which have delivered impressive returns,” he feels. “I would tend to think, that given the tax benefits that are available such schemes will remain popular with the investors. Being purely equity driven they give first time investors a taste of the market but as they carry high risk, will not quite be as popular with say deposit holders who want an assured and safe return. While returns will be good in the medium term on equity funds if we believe that the India story is intact, the appeal will still be higher for those with higher risk appetite.” Sums up Deven Choksey, promoter, KR Choksey group: “Expected increase under Sec 80C (from ?1.5 lakh to? 2 lakh), would be beneficial for instrument and investor.”
♦ LANCELOT JOSEPH [email protected]
Performance of ELSS schemes
|Tax Saver Funds(ELSS)||AAUM ? Crore||NAV
|5||1||Performance % Years
|Reliance Tax Saver Fund||3458||50.06||1||1||1||1||104.91||47.68||33.71||23.50||21 Sep, 05|
|Birla Sun Life Tax Relief 96||1809||138.79||2||2||2||11||73.25||37.99||28.54||16.42||29 Mar, 96|
|ICICI Prudential Tax Plan – Regular Plan||2341||277.16||7||4||6||6||63.74||34.22||26.48||18.31||19 Aug, 99|
|DSP BlackRock Tax Saver Fund||1019||32.20||9||9||7||7||62.62||32.77||26.41||17.56||18 Jan, 07|
|Franklin India Taxshield Fund||1500||422.98||6||7||8||2||67.33||33.43||25.77||19.70||10 Apr, 99|
|SBI Magnum Taxgain Scheme||5003||114.78||10||8||10||14||60.83||33.02||25.11||16.10||31 Mar, 93|
|HDFC Taxsaver Fund||4910||408.34||8||10||12||10||63.60||31.92||22.13||16.42||31 Mar, 96|
|Kotak Tax Saver||460||31.56||3||15||13||15||71.59||27.75||21.81||14.99||23 Nov, 05|
S&P BSE Sensex Index 39.97 22.44 17.01 12.21
CNX Nifty Index 42.23 22.30 16.86 12.44
Funds included with AUM in range of ?500 cr and above & theirCurrent Rankings.
(Source: Ranking & Data from Value Research as on 23rd, Feb)