Equity Linked Saving Schemes in India

Presented By: Narayan Gaonkar

Mutual fund industry is emerged in 1964 in

India and developed enormously. Mutual funds

could give returns with low risk than the market

risk and the volatility of the mutual fund market

is less than the stock market.

introduction

Mutual Funds:

A type of professionally managed collective investment scheme that pools money from many investors to purchase securities.

It is a trust that pools the savings of a number of investors who share a common financial goal.

Why people go for mutual fund..?

Meaning of ELSS:ELSS is a dedicated mutual fund scheme that allows investors to save tax. An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have potential to deliver the high-returns..

Why should one invest in an ELSS?Equity Returns

Tax Benefit

Lock-in period of 3 years

ELSS mutual funds helps to grow money

Five important facts about ELSS funds

1.Risk2.Taxability3.Lock-in periods4.Growth5.Threshold

1.How much is the risk?

In fact, the risk is higher in ELSS funds because you cannot exit before three years.

2. What is the taxability?

ELSS funds fall under the exempt-exempt-exempt (EEE) category. Investments get tax

deduction under Section 80C.

Tax Advantage of ELSS

Particulars Without ELSS/ 80C

Tax Saving Investment

With ELSS/ 80C Tax Saving Investment

Gross Total Income Rs.7,50,000 Rs.7,50,000

Exemption Under Section 80C

Nil Rs.1,50,000

Total Income Rs.7,50,000 Rs.6,00,000

Tax on Total Income Rs.80,000 Rs.55,000

Tax Saved on Investment

Nil Rs.25,000

Instrument Lock-in Period

ELSS 3 Years from the date of allotment of the respective Units

Bank Fixed Deposit

5 Years

PO Time Deposit 5 Years

NSC 6 years

PPF 15 Years (Partial withdrawal after 6 years)

3.What is the lock in period?

4.Growth or liquidity?

The growth plan is the cumulative option under which your investment will keep growing till you redeem it. In the dividend plan, the fund gives some amount back to if the fund's NAV has risen

5.What is the threshold?

Most equity funds have a minimum investment limit of R.s 5,000, but ELSS funds have a lower threshold of R.s 500

India – Why Invest in Equities 9% GDP growth makes India among the fastest

growing economies in the world.

Indian companies today are very competitive – have growing cost-effectiveness, a confident management, global outlook & plans, etc.

As profits grow (between 15%-20%) the market would also grow at such a rate over long term since the prices always trail the profits.

The market valuations are now fair and stocks are not overvalued. For a long-term investor, the opportunity to create wealth over time is great.

Comparison between ELSS and other investment securities-

Parameter PPF NSC ELSS

Tenure 15 years 6 years 3 years

Returns (Compounded Annually)8.80 %

(Compoundedhalf-yearly)8.60 to 8.90 %

Not assured dividends/ returns

Minimum investments

Rs.500 Rs.100 Rs.500

Maximum investments

Rs.100,000 No limit* No limit*

Amount eligible fordeduction under Section 80C

Rs.100,000 R.s 1,00,000 R.s 1,00,000

Taxation for interest

 Tax free  Taxable Dividends and capital gain tax free

 Safety/ Rating  Highest  Highest  High Risk

ELSS Ranking• Axis Long Term Equity Fund

• Birla Sun Life Tax Plan

• Birla Sun Life Tax Relief 96

• BNP Paribas Tax Advantage Plan

• Canara Robeco Equity Tax Saver

• DSP Blackrock Tax Saver Fund

• Franklin Tax shield Fund

• HDFC Long Term Advantage Fund • HDFC Tax Saver Fund

• HSBC Tax Saver Equity Fund

How to choose best ELSS mutual funds to invest ?

Consider Crisil Rank-1, Rank-2 and Rank-3 ELSS mutual funds

Consider top rated funds by Value research online. You can choose 5 star, 4 star and 3 star rated funds to invest.

Consider funds where the Assets Under Management (AUM) is more than R.s 100 Crores. This would indicate that such schemes have gained confidence from investors and they are investing more and more in such schemes.

Performance in last 3 to 5 years’ time frame. 

Demerits of ELSS

Risk is higher in ELSS funds, because we cannot exit before three years. 

Conclusions

Purely from a tax management perspective, ELSS investment stands out as a preferred destination.

For others who want liquidity as well as

growth and the freedom to shift through funds, then there are other avenues available as well. But from a tax saving perspective, this is a ‘must-have’.

Happy Investing

Thank You