ELSS (Equity linked savings scheme) funds: Tax saver – Money maker

March 31^st is nearing by and most of them wondering as to where to stack the money which gives good returns ad saves tax…

ELSS is a favourite among financial advisors. The advantages are many – gives you highest return amongst tax saving instruments available in India over a long period of time. What more can one ask for?

ELSS over ULIP (Unit linked insurance plan) 

Though one must not discount importance of insurance, ELSS still has edge over ULIP.  ELSS has much lesser administration cost just 2% either in the form of entry load or exit load. The entire amount of investment goes in to mutual fund unlike ULIP where a certain amount is deducted for mortality charges, administration charges etc.  The lock in period of ELSS is three years and can be withdrawn later. Dividends received from ELSS are tax free.

Growth option is the best choice for ELSS as there is substantial capital appreciation. Avoid dividend reinvestment option as the small amounts will get locked in for three years again. You can choose the SIP way again for ELSS

How to choose the scheme, 

Short term performances of the fund can be ignored as its negligible and concentrate on the brand and track record for over a period. Consistency in performance of fund is the key. Many times certain funds become hit over a period but the quality deteriorates over a period of time. Don’t go just by the brand also as there have been times when investors have been doomed by just going by brand name and have lost their capital.

Below is the list of top 10 performing ELSS funds based on performance since launch

Open Ended - Equity: Tax Planning - (Since Launch Return)
Funds	NAV (Date)	Returns(%)	Return as on
HDFC Taxsaver	94.41 (15-Jan)	30.76	1/15/2009
Birla Sun Life Tax Relief 96	42.79 (15-Jan)	28.22	1/15/2009
Franklin India Taxshield	94.43 (15-Jan)	25.82	1/15/2009
Sahara Tax Gain	16.43 (15-Jan)	24.92	1/15/2009
HDFC LT Advantage	58.69 (15-Jan)	24.56	1/15/2009
Principal Personal Tax Saver	45.09 (15-Jan)	22.44	1/15/2009
Birla Sun Life Tax Plan	32.96 (15-Jan)	20.35	1/15/2009
ICICI Prudential Tax Plan	54.11 (15-Jan)	19.58	1/15/2009
Tata Tax Saving	26.63 (15-Jan)	18.52	1/15/2009
Sundaram BNP Paribas Taxsaver	23.13 (15-Jan)	18.14	1/15/2009

From a tax management perspective, ELSS investment stands out as a preferred investment. Investors, who want to lock-in their funds and not succumb to the temptation of re-working and shuffling their holdings, will find ELSS a good avenue for investment as there is three year lock-in period.

For others who want liquidity as well as growth and the freedom to shift through funds, then there are other avenues available. But from a tax saving perspective, this is a ‘must-have’....

PS : Many feel that investing a small amount (Rs 500) wont make much of a difference. Actually it does over a period it is not the amount of investment that matters it’s the attitude that matters.