What is ELSS ?

ELSS is a type of diversified equity mutual fund, qualified for tax exemption under section 80C of the Income Tax Act. It offers two advantages - capital appreciation and tax saving benefits, and comes with a lock-in period of 3 years.

Why ELSS ?

ELSS lock-in period of 3 years is the lowest lock-in period among the tax saving instruments, compared to – PPF (15 years), NSC (6 years), and Bank Fixed Deposits (5 years). It also provides an easy entry with a minimum investment requirement as low as Rs. 500. This being a mutual fund variant provides the benefit of diversification while participating in equity markets. Investing into equity related instruments demands a long-term holding period to ensure relatively stable and good returns. And ELSS provides this option.

There are options of both Lump sum (bulk or one time) and Systematic Investment Plans (phased and in instalments) - both modes of investments into mutual funds.
 

Go beyond tax saving

While the lock-in period is 3 years from the point of view of tax savings, it is suggested that investors need not link ELSS investments just to their 3 year investment requirements. It is advisable that investors consider these schemes for a longer term investment perspective that is more than 3 years. The performance of ELSS schemes substantiates this proposition. The data below shows that ELSS schemes have given superior returns in a longer term perspective - 5 years, compared to a 3-year horizon.

It is quite evident that ELSS schemes have generated substantial alpha over the indices like NIFTY and Sensex over a 5-year and 10-year horizon. So ELSS schemes can be considered not only for tax saving purpose, but also as an investment planning option for certain goals in life.

Salient Features of ELSS

1)ELSS is a type of mutual fund equity scheme
2) It is an open-ended equity fund – Investors can invest into this fund any day
3) Provides tax benefits under Section 80C of Income Tax Act 1961
4) Maximum tax benefit is to the tune of Rs. 1 Lakh under Section 80C (No ceiling on maximum amount for investment)
5) ELSS has exposure to equity and equity related instruments
6) Suitable for all risk profiles where a reasonable amount of equity can be taken
7) Any dividend received by the investor or any long term capital gains earned by the investor is tax free

 

Fund Name	Star Rating	3 Yrs	5 Yrs	10 Yrs
Axis Long Term Equity Fund	5 Star	30.93%	22.48%	-
Reliance Tax Saver (ELSS) Fund	4 Star	34.00%	20.76%	14.57%
DSP Blackrock Tax Saver Fund	4 Star	28.55%	20.60%	-
Birla Sunlife Tax Relief 96	4 Star	29.36%	19.86%	12.77%
ICICI Prudential Long Term Equity Fund	4 Star	26.44%	18.85%	12.80p%
Franklin India Tax Shield	4 Star	26.83%	18.34%	14.65%

 Returns as on 30th September 2016

Reliance Tax Saver (ELSS) Fund (Benchmark: BSE 100)   

• Fund Manager: Ashwani Kumar
• It is actively managed, following both top down and bottom up approach based on macro framework.
• Have Large Cap Orientation
• Consolidate the portfolio with 50% exposure to BSE 100 / NSE / Nifty or top 100 companies by market capitalization
• Invest the balance 0 %- 50%  outside BSE – 100 ( To invest in unique stock ideas which predominantly have a growth bias and also to have aggressive sector weights
• To have flexible cash allocation with maximum limit of 25% to counter abnormal market condition
• Endeavors to declare quarterly dividend of minimum 2% dividend Yield. So in 3 years you save 24% dividend yield + 30% Tax Saving + Fund Returns