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Sunday, 1 April 2018

Choose ELSS based on risk appetite, not on Ratings


An investment must be good in terms of yields and should be available when we need money. This applies to tax saving investments also. It should be good investment first and tax-saver later. There are many instruments for tax saving in India. We have various options available under section 80C as

  • PPF
  • NSC
  • NPS
  • ULIP
  • ELSS


If we validate all these available options in of terms of return and liquidity then ELSS will be the most appropriate option. ELSS funds are pure equity funds with three year lock-in.  The returns on redemption (after lock-in) will attract LTCG (10% of the return above 1Lakh, introduced this year).


There are various funds available in ELSS category. We should not see all ELSS funds of same kind. Like any other equity funds each ELSS funds have their own nature of investment. They can be categorized as large caps funds, multi-cap funds, value funds, growth funds, etc. So we before choosing any ELSS fund for investment one should know where his money going to be invested. We mostly ended up comparing all of ELSS funds purely based on return and ratings. The decision should also be depended on the risks taken to produce returns. Selected fund must be aligned with the investor’s risk profile, i.e. fund’s profile should be matched with your risk appetite. So please take the star ratings with a pinch of salt.


For example Reliance Tax Saver, Sundaram Tax Saver and IDBI Equity Advantage have a clear mid-cap bias which leads more volatility. Franklin India Taxshield, DHFL Pramerica Tax Savings and Edelweiss Tax Advantage have predominantly large-cap exposure. Whereas, Axis Long Term Equity, Birla Sun Life Tax Plan, ICICI Prudential Long Term Equity have a more balanced portfolio.


At the beginning this financial year, calculate the amount you have left over from the Rs 1.5 lakh limit after deductions like PF, insurance  Premiums and Home loan Principle, divide it by 12 and start an SIP. You can get a decent return that beats inflation with a good margin.


Hope this help.

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