Best Tax Saving Mutual Funds-VRK100-08Oct2012
Rama Krishna Vadlamudi has analysed the performance of all tax-saving mutual funds or ELSS funds for the benefit of individual investors who can avail tax benefit under Section 80C of the Income Tax Act.
Content
Rama Krishna Vadlamudi, HYDERABAD
08 October 2012
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
ELSS funds entail a lock-in period of three years from the date of investing 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 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 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.
Rama Krishna Vadlamudi, HYDERABAD 08 October 2012 www.ramakrishnavadlamudi.blogspot.com
The Fab Five!
Best Tax-Saving Equity Mutual Funds 1 2 3 4 5 Canara Robeco Equity Tax Saver Fidelity Tax Advantage Franklin India Taxshield ICICI Prudential Tax Plan Religare Tax Plan
NAV Rs Canara Robeco Equity Tax Saver Fidelity Tax Advantage Franklin India Taxshield ICICI Prudential Tax Plan Religare Tax Plan Nifty (NSE) return 28.4 22.7 227.5 149.3 18.7 -
AAUM Rs crore 456 1 166 853 1 363 120 -
Return % 2008 -46.9 -50.1 -49.2 -56.0 -49.5 -51.8 2009 89.4 86.7 78.8 112.0 83.5 75.8 2010 24.9 29.2 23.5 24.1 22.1 17.9 2011 -16.4 -21.8 -15.2 -24.0 -19.0 -24.6 2012 * 24.5 22.9 22.0 30.0 24.0 24.3
Note: NAV - net asset value as on 05Oct2012 for growth option AAUM - average assets under management as on 30Sep2012 * 2012 returns are up to 05Oct2012
Important Highlights: 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 All the above are open-ended tax-saving equity funds holding mainly largecap stocks; with a good long-term track record of more than five years 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 The lowest expense ratio of around 2% per annum is charged by Fidelity Tax Adv., Franklin India Taxshield and ICICI Tax Plan schemes All the above funds have no entry load or exit load All the fund managers are having good experience of 10 to 15 years These funds have provided superior & consistent returns in the past 5 years 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
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Rama Krishna Vadlamudi, HYDERABAD 08 October 2012 www.ramakrishnavadlamudi.blogspot.com
Investment Principles It is always better for investors to invest in equity funds in a systematic and phased manner – growth options are advisable Equity funds perform well in periods of five years or more Investors should track the performance of funds at least every three months 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 Equity mutual funds carry higher risk and their returns are very volatile 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
Page 3 of 3
08 October 2012
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
ELSS funds entail a lock-in period of three years from the date of investing 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 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 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.
Rama Krishna Vadlamudi, HYDERABAD 08 October 2012 www.ramakrishnavadlamudi.blogspot.com
The Fab Five!
Best Tax-Saving Equity Mutual Funds 1 2 3 4 5 Canara Robeco Equity Tax Saver Fidelity Tax Advantage Franklin India Taxshield ICICI Prudential Tax Plan Religare Tax Plan
NAV Rs Canara Robeco Equity Tax Saver Fidelity Tax Advantage Franklin India Taxshield ICICI Prudential Tax Plan Religare Tax Plan Nifty (NSE) return 28.4 22.7 227.5 149.3 18.7 -
AAUM Rs crore 456 1 166 853 1 363 120 -
Return % 2008 -46.9 -50.1 -49.2 -56.0 -49.5 -51.8 2009 89.4 86.7 78.8 112.0 83.5 75.8 2010 24.9 29.2 23.5 24.1 22.1 17.9 2011 -16.4 -21.8 -15.2 -24.0 -19.0 -24.6 2012 * 24.5 22.9 22.0 30.0 24.0 24.3
Note: NAV - net asset value as on 05Oct2012 for growth option AAUM - average assets under management as on 30Sep2012 * 2012 returns are up to 05Oct2012
Important Highlights: 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 All the above are open-ended tax-saving equity funds holding mainly largecap stocks; with a good long-term track record of more than five years 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 The lowest expense ratio of around 2% per annum is charged by Fidelity Tax Adv., Franklin India Taxshield and ICICI Tax Plan schemes All the above funds have no entry load or exit load All the fund managers are having good experience of 10 to 15 years These funds have provided superior & consistent returns in the past 5 years 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
Page 2 of 3
Rama Krishna Vadlamudi, HYDERABAD 08 October 2012 www.ramakrishnavadlamudi.blogspot.com
Investment Principles It is always better for investors to invest in equity funds in a systematic and phased manner – growth options are advisable Equity funds perform well in periods of five years or more Investors should track the performance of funds at least every three months 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 Equity mutual funds carry higher risk and their returns are very volatile 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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