Rama Krishna Vadlamudi,
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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 Income Tax Act for any one or more of
the ELSS funds
ü
Some proposals are under the consideration of the Government to
make changes to tax exemption rules of ELSS schemes. However, for investments
made up to 31 March 2013, individual investors will 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!
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Best Tax-Saving Equity Mutual
Funds
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1
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Canara
Robeco Equity Tax Saver
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2
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Fidelity
Tax Advantage
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3
|
Franklin
India Taxshield
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4
|
ICICI Prudential Tax
Plan
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5
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Religare
Tax Plan
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NAV
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AAUM
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Return %
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Rs
|
Rs crore
|
2008
|
2009
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2010
|
2011
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2012 *
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Canara
Robeco Equity Tax Saver
|
28.4
|
456
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-46.9
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89.4
|
24.9
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-16.4
|
24.5
|
Fidelity
Tax Advantage
|
22.7
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1 166
|
-50.1
|
86.7
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29.2
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-21.8
|
22.9
|
Franklin
India Taxshield
|
227.5
|
853
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-49.2
|
78.8
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23.5
|
-15.2
|
22.0
|
ICICI Prudential Tax
Plan
|
149.3
|
1 363
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-56.0
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112.0
|
24.1
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-24.0
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30.0
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Religare
Tax Plan
|
18.7
|
120
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-49.5
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83.5
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22.1
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-19.0
|
24.0
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Nifty (NSE) return
|
-
|
-
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-51.8
|
75.8
|
17.9
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-24.6
|
24.3
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Note: NAV - net asset value as on 05Oct2012 for growth option
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AAUM - average
assets under management as on 30Sep2012
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* 2012 returns are
up to 05Oct2012
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Important
Highlights:
ü
Canara
Robeco Equity Tax Saver fund has been maintaining its good track record in the
last five years as can be seen from the above table
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 five years
ü
They
hold 17% to 36% in mid & small-cap stocks, except Religare Tax Plan fund,
which holds 44% of its assets in mid
& small-cap stocks
ü
The
lowest expense ratio of around 2% per annum is charged by Fidelity Tax Adv.,
Franklin India Taxshield and ICICI Tax Plan schemes
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 5 years
ü
Other funds to consider are HDFC Taxsaver and
Quantum Tax Savings – the latter charges only 1.25% expense ratio though its
net assets are only Rs 7.2 crore
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
ü
Past
performance is no guarantee of future performance
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
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