Best Tax-Saving Mutual Funds-VRK100-30Sep2011

Best Tax-Saving Mutual Funds

How to Get Good Returns While Saving Tax

UPDATED on 05 October 2012 at URL:

http://ramakrishnavadlamudi.blogspot.in/2012/10/best-tax-saving-mutual-funds-vrk100.html

Rama Krishna Vadlamudi, HYDERABAD   30 September 2011
www.ramakrishnavadlamudi.blogspot.com

Tax-saving mutual funds in India are well known as equity-linked savings schemes (ELSS) because investors can avail of income tax benefit. The current financial year ends in six months time. So, it is better to do tax planning right now and to start investing in ELSS funds rather than postponing till the last minute.

If your objective is to invest for the long term of three to five years, you can ignore the short-term movements in the stock market and allocate money in a systematic and regular way. ELSS funds offer the additional benefit of income tax saving for individual investors depending on their tax bracket; provided they can withstand the ups and downs of returns inherent to the equity mutual funds.

Essential features of ELSS funds

ü      ELSS funds entail a  lock-in period of three years from the date of investing

ü      Due to the three-year lock-in period, you cannot sell your investments for three years and they remain illiquid for the first three years

ü      Income Tax benefit is available for the principal investment of up to Rs one lakh in a financial year under Section 80C of the IT Act for any one or more of the ELSS funds

ü      Under the proposed Direct Taxes Code Bill, it has been proposed to withdraw tax exemption for ELSS funds from April 1, 2012. But under the present circumstances, whether this proposal will become a law before the next budget is doubtful. For investments made up to 31 March 2012, you’ll get tax exemption without doubt.

In this article, I present a brief list of tax-saving funds that are worth considering for investors who can avail of the tax benefit offered under Section 80C of the Income Tax Act.

	The Fab Five!

	Best Tax-Saving Equity Mutual Funds
1	Canara Robeco Equity Tax Saver
2	Fidelity Tax Advantage
3	Franklin India Taxshield
4	Religare Tax Plan
5	Sahara Tax Gain

	NAV	AAUM	Return %
	Rs	Rs crore	2007	2008	2009	2010	2011
Canara Robeco Equity Tax Saver	24.3	290	65.2	-46.9	89.4	24.9	-10.8
Fidelity Tax Advantage	20.2	1 240	58.7	-50.1	86.7	29.2	-14.2
Franklin India Taxshield	201.9	827	56.0	-49.2	78.8	23.5	-8.3
Religare Tax Plan	16.6	108	-	-49.5	83.5	22.1	-10.6
Sahara Tax Gain	34.1	11	64.7	-49.6	90.6	20.4	-14.3
Nifty (NSE) return	-	-	54.8	-51.8	75.8	17.9	-19.4

            Notes: NAV – net asset value as on 30Sep2011 for growth options

                           AAUM – average assets under management as on 30Jun2011

                           2011 return is up to 30Sep2011

Important Highlights:

ü      If you had invested Rs 10,000 in Canara Robeco Equity Tax Saver fund on 10 January 2008 at the Sensex peak of 21,000, your total investment would have been Rs 13,465 as on 30 September 2011 when Sensex is at 16,450. It means the fund has given an absolute return of 35 per cent while Sensex has gone down by more than 20 per cent in the last 45 months!

ü      All the above are open-ended tax-saving equity funds holding mainly large-cap stocks; with a good long-term track record of more than four years

ü      They hold 25% to 45% in mid-cap stocks, except Sahara Tax Gain fund, which holds 51% of its assets  in mid-cap stocks

ü      The lowest expense ratio of 2% per annum is charged by Fidelity Tax Adv.

ü      All the above funds have no entry load or exit load

ü      All the fund managers are having good experience of 10 to 15 years

ü      These funds have provided superior & consistent returns in the past 4 years

ü      Sahara Tax Gain’s total assets are Rs 11 crore as on 30Jun2011

Investment Principles

ü      It is always better for investors to invest in equity funds in a systematic and phased manner – growth options are advisable

ü      Equity funds perform well in periods of five years or more

ü      Investors should track the performance of funds at least every three months

ü      Never borrow to invest in equities or equity mutual funds unless you are a professional investor and can track the markets on a regular basis

ü      Equity mutual funds carry higher risk and their returns are very volatile

Data Source: ValueResearchOnline

Disclaimer: The author is an investment analyst & writer. His views are personal and should not be construed as an investment recommendation. Please consult your certified financial adviser before making any equity investments. There is risk of loss in ELSS schemes. The author is an equity investor and he has a vested interest in the stock market movements. It is safe to assume that he has investments in a few of the above mutual fund schemes. His articles on financial markets can be accessed at www.ramakrishnavadlamudi.blogspot.com