Equity Linked Savings Schemes

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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.

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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.

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.

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