Safe heaven


ELSS funds are excellent prospects for investors. They are the only way to get good equity exposure while sav­ing tax. All tax-saving investments
Since 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.

Impressive returns

“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


1 Ranking


2 3

5 1 Performance % Years

2 3

5 Launch


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)


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