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Equity Linked Savings Schemes

Updated on June 11, 2018

Introduction

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

It have tax benefit 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 have a locking period of 3 years, 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 this 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 in 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 need a regular dividend income, dividend option should be selected, but Long Term investment tax @10% should be paid for the dividend income.

How much year you are considering for equity investment?

See results

Top Funds on basis of Growth

The table below shows the funds which attained highest growth in 2017. It may be noted that small fund houses with least asset under management had gained highest growth in 2017. But it should be remembered in the cause of equity funds that past performance should not repeat in future. In next year, some other fund should be the winners. The investors should select gIood 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 on 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 star rating 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 upto 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 try to invest there. Also, not will withdraw the money invested after lock-in-period. Try to remain in the scheme for a period of 10 years in equity market.
  • If money is urgent, try to withdraw partially, when market in in higher value and invest in debt funds after the completion of 3 year.
  • If the performance of the scheme is below average for a long period, try to switch in better schemes after lock-in-period.
  • Star rating of mutual fund 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 purpose try to invest in Debt funds or others. But investment in debt instruments for long term purpose is also risky. To beat the inflation rate, no other investment method than equity market is not before an investor.

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