ELSS Investing

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Most buyers don't invest systematically and withdraw when the three-year lock in period is over.

They are very transparent, offer tax free gains and high liquidity and have very low charges. But the biggest draw of ELSS funds is their potential to de liver spectacular returns. The best performing ELSS scheme, Axis Long-Term Equity Fund, has churned out over 18% compounded annual returns in the past five years. So, `60,000 invested in the fund in February 2011 is now worth `1.4 lakh.

However, not all investors have made money. ELSS funds carry the same risk as any equity scheme and if you had invested in February 2015, you would be sitting on losses. That's why financial advisers and fund houses tell investors to invest in equity funds through monthly systematic investment plans (SIPs). But it seems investors aren't listening.

According to data from Computer Age Management Services (CAMS), barely 15% of the total inflows into ELSS funds comes through SIPs. In 2014-15, SIPs accounted for only `578 crore of the total inflows into the ELSS schemes of the 15 fund houses serviced by CAMS. If extrapolated to the entire industry, this means roughly `1,200 crore came in as SIPs during a year when the total inflow into the ELSS category was `8,343 crore.More than 85% of the inflows were one-time or lump sum investments.

Figures from the Association of Mutual Funds in India (AMFI) are more disturbing. Nearly 50% of the total inflows into the ELSS category happen in the last three months of the financial year. The month of March alone accounts for 22-25% of the total inflows. Instead of taking the safer and more convenient SIP route, taxpayers are getting caught in the rush of March and investing lump sum in risky assets.

Delaying tax planning and investing in the last few months can be disastrous. Calculations show that if a taxpayer started an SIP of `5,000 per month in the Axis Long-Term Equity Fund in April 2012 and continued till March 2015, the `1.8 lakh invested over three financial years would be now worth `2.95 lakh. However, if the investments were bunched into the last three months of the three financial years, the corpus would be 14% smaller at `2.54 lakh. Not taking the SIP route would have cost him `41,000.

The other mistake is that investors take a blinkered view of ELSS funds. Instead of looking at them as a means to grow wealth over the long term, they are seen as a short-term tax-saving investments that can be redeemed after three years.Investments are followed by redemptions, so the net inflows into the category are low and average folio size is very low. ICICI Prudential Long-Term Equity (Tax Savings) has given returns of over 21% since it its August 1999 launch. `10,000 invested in the NFO is now worth `2.42 lakh. But despite robust inflows every year, the average folio size is `61,220. This means very few investors have earned the 21% returns since launch.

 

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Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

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