Why one can’t afford to miss out on ELSS funds?

What is it?

Now we all know that certain investments are exempt under the section 80C for calculation of taxable income in any accounting year. Such investments include among others PPF, Insurance Premium, Principal repayment on housing loan, NSC, Fixed Deposits and Equity Linked Saving Schemes (ELSS).   A fund is said to be an ELSS if it has more than 65 percent investment in equity, has a three-year lock-in period during which investment can’t be withdrawn and has the necessary approval from the tax authorities. From current fiscal year the investment limit under section 80C has been hiked from Rs 1,00,000 to Rs 1,50,000 leading to a rush of investment in these avenues to make use of additional limit of Rs 50,000.

Why ELSS?

Equity has proved itself to be the best investment instrument as far as the returns are concerned provided that one has a medium to long term horizon. After a turbulent 2011, the equity markets did very well in 2012 and are continuing the momentum after a landslide victory of Modi led NDA in 2014.

For retail investors, Mutual Fund remains the best mode of investment in equity and a number of funds under ELSS has consistently outperformed benchmark over a period of time and have generated best returns among other investment avenues available under 80C.

Although, volatile environment tends to keep investors away from this instrument, we feel that if one has a longer horizon, equity still remains the best investment instrument considering its ability to generate returns far superior than any other. ELSS provides perfect opportunity for investors to combine tax planning with equity exposure and will enable investor to generate long term wealth.

Our ELSS fund recommendations:

·         Franklin India Taxshield Fund

·         Reliance Tax Saver Fund

·         ICICI Prudential Tax Plan - Regular Plan

·         HDFC Taxsaver Fund

By Rajat Gupta– Research Analyst (Value Addition) – Concept Securities Private Limited