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Equity Linked Savings Schemes

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Stock Market Investment is not for just Profit, but for an Investment in Nation...!

Introduction

Equity Linked Savings Scheme is really a type of mutual fund. What is its difference from other mutual funds?

  • It has tax benefits under 80 C of Income Tax Rules, 1961 in India. One can invest Rupees 150,000 per year and exclude this amount from Tax Calculation.
  • It has a locking period of 3 years, which means liquidity is not available for the first 3 years. If the investment is in the dividend plan of ELSS, the investor can be assured a regular dividend income.
  • Almost fund houses in India have these tax planning schemes. The aim of this plan is really the encouragement of stock market investment for middle-class income groups.

Features

Above 95% of ELSS are generally investing in equity markets. Almost Equity Linked Schemes are multi-cap diversified funds. Some are investing equally in Large-cap and mid-cap stocks while others are mostly in Large caps. Every fund houses are trying to give a long term return from it.

This plan starts with just 500 Rupees for Lump sum purchase and Systematic Investment Plan Purchase. Only, Rupees 150,000 is eligible for tax benefit under 80C of Income Tax Rule but can invest more.

If one needs a regular dividend income, a dividend option should be selected, but Long Term investment tax @10% should be paid for the dividend income.

Top Funds on basis of Growth

The table below shows the funds which attained the highest growth in 2017. It may be noted that small fund houses with the least assets under management had gained the highest growth in 2017. But it should be remembered in the cause of equity funds that past performance should not repeat in the future. In next year, some other fund should be the winners. The investors should select Good funds after visiting good sites like Morning Star or Value Research.

Fund Name

Growth in 2017 in %

Asset Under Management in Rupees in Million

One Year Return in %

BOI AXA tAX ADVANTAGE FUND

57

1331.4

32.18

IDFC TAX ADVANTAGE FUND

52

8970.9

26.54

PRINCIPAL TAX SAVINGS FUND

47

3947.2

20.63

MIRAE TAX SAVER FUND

46

7902.9

19.50

MOST FOCUSED LONG TERM GROWTH OPTION

42

8016.7

22.61

ABSL TAX RELIEF "96 GROWTH OPTION

42

47589.1

21.57

Top Funds on the basis of Asset under Management

Here some funds are selected on the basis of Asset Under Management as of 28/02/2018. The performance of a fund is on the basis of good stock selection. Investors are selecting funds on the basis of star rating provided by various web sites and fund sellers. They give a star ratings on the basis of good stocks in their portfolio.

Fund Name

Asset Under Management as on 28/02/2018 in Million Rupees

One Year Return in %

AXIS LONG TERM EQUITY FUND

161610

21.96

RELIANCE TAX SAVER (ELSS) FUND

103450

11.13

HDFC TAX SAVER FUND

70170

09.64

SBI MAGNUM TAX GAIN SCHEME

64310

10.84

ICICI PRUDENTIAL LONG TERM EQUITY FUND (TAX SAVING)

50340

08.45

ADITYA BIRLA SUN LIFE TAX RELIEF "96

50320

21.96

Things to be remember while selecting ELSS

  • ELSS has a locking period of up to 3 years. Cash intends for urgent needs, should not invest in the Scheme.
  • Debited money should not invest in Equity schemes
  • Only surplus money for long-term goals such as retirement purpose is to try to invest in ELSS.
  • Don't withdraw the money invested after the lock-in-period. Try to remain in the scheme for a period of 10 years in the equity market.
  • If money is urgent, try to withdraw partially, when the market AT higher valuation and invest in debt funds after the completion of 3 years.
  • If the performance of the scheme is below average for a long period, try to switch to other better schemes after the lock-in-period.
  • Star rating of mutual funds based websites like Value Research and Money Control should consider before investing.

Conclusion

Equity investments are risky for a short term purpose. For short-term purposes try to invest in Debt funds. But investment in debt instruments for long term purpose is also risky. To beat the inflation rate, there is no other investment method than the equity market before an investor.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2018 Indra