year, mostly in the months from January to March
people put money up to Rs. 1 lakh into tax savings schemes like Public
Provident Fund, life Insurance schemes, ULIP schemes, 5-year Fixed
ELSS mutual funds and various other schemes to save taxes up to Rs.
under Section 80C of the Income Tax Act.
look at ELSS funds. ELSS stands for Equity Linked Savings
Schemes. It is a special category of mutual funds created specifically
saving. The difference from other mutual funds is that this is an
equity-oriented mutual fund with a lock-in of minimum 3 years. That is,
eligible for tax deduction, the investor is required to be invested
ELSS fund for at least a period of 3 years. You do not have an option
redeeming from an ELSS fund before the completion of 3 years.
ELSS funds invest mostly into shares of companies listed
in Indian stock exchanges. In that sense, investing into ELSS mutual
schemes is a double bonanza. One can say that it is not a bad bargain
you save tax up to Rs. 30,000 as well as earn returns from the equity
Also, the lock in period is the lowest of any investment approved under
80C of the Income Tax Act.
ELSS funds were available from 1996,
it is only in the past few years that the ELSS funds have become very
with tax savers and investors alike. From chart 1, we can see the
growth of the
assets of the ELSS funds over the past few years. Prior to 2005, the
ELSS funds were around Rs. 500 crores but by January 2010, the assets
schemes have grown close to Rs. 22,500 crores, a jump of
close to 4400%, in just a matter
of 4 years.
chart 1: Growth
under ELSS mutual
of this spectacular growth is due to the stock market
performance from 2004 to 2007; although the assets in the ELSS funds
2008, but the market crash of 2008 did not deter the investors from
into the ELSS funds. Once the market recovered in 2009, by the January
the assets of ELSS funds have reached close to Rs. 22,500 crores. This
higher than Rs. 16,000+ crores of assets reached in December 2007, when
Indian stock markets were at an all time high.
of ELSS Funds
its value to the investors, the ELSS fund is a very
important category and every asset management company makes sure that
at least one ELSS fund. Currently there are 37 ELSS funds and 17 of
have been in existence for over 5 years. Table 1 show us the top 5
funds for the past 5 years on our platform
of end of December 2009, the expense ratio of most ELSS
funds is in between 1.82% to 2.5%.
the current market climate, as seen from chart 2, we find
that the fund managers of the ELSS funds have become aggressive with
equity investments as compared to January 2008. The average cash
debt investments across ELSS funds have dropped from 13.8% in January
5.2% in January 2010. Also, the exposure to the midcap sector, as
the exposure of the ELSS funds to companies in the BSE Midcap index,
increased from 17.3% in January 2009 to 25.2% in January 2010. The
large caps as measured by the exposure
of the ELSS funds to companies
BSE SENSEX has reduced from 42.2% in January 2009 to 38.7% in January
in ELSS Funds
long term investor would prefer to choose investing into
the growth option of an ELSS Fund and for investors who like dividends,
are dividend payout and dividend reinvestment schemes in ELSS funds
dividends are tax free in your hands. However, please note that if you
dividend reinvestment ELSS scheme, even the units allotted from the
reinvestment are locked in for three years.
sum it up, ELSS funds are a special category of mutual funds that help
taxes up to Rs. 30,000 on investing up to Rs. 1 lakh, under the Section
the Income Tax Act. Additionally, ELSS funds have one of the lowest
period for any investment approved under Section 80C of the Income Tax
Investors into ELSS schemes enjoy double benefits of paying lower taxes
enjoying equity market returns.
To view and buy the various ELSS funds on our platflorm click
here and choose fund class as "ELSS" and then click generate table
Chart 2: Exposure
ELSS funds to various market cap