With the Indian financial year around the corner, Tax planing is one activity which comes on everyone's mind. In this article we will cover one of the tax saving instrument, Equity Linked Saving Schemes (ELSS).
Equity Linked Saving Schemes are mutual funds that invest in the stock market and also give tax benefit under Section 80C. Apart from tax benefits these mutual funds have exploited the rally in equity markets very well.
For three years ended Nov'07 most of the top funds in this category have given an average yearly return of around 60%.
Funds like SBI Magnum tax gain, Principal personal tax saver fund, Sundaram BNP Paribas Tax Saver have generated sensation returns of more than 130% per annum during the last 5 years. Not to say most of this is attributed to the exceptional Bull run of the Indian Stock Market.
With the Global economy showing a steep slowdown, the question remains can these mutual funds continue the sensational returns. Below are out top ELSS mutual funds picks which we feel will continue to beat the Index return.
The parameters we have considered in evaluating these mutual funds are
1) Past performance for the last 5 years.
2) Funds Sectoral concentration.
3) Portfolio and Fund management dynamics.
1) SBI Magnum Tax Gain Scheme
NAV: 67.57 (Dividend), 67.62 (Growth)
Absolute Return
Duration Return (%)
2007....... 54
3 year..... 343.8
5 year..... 1,475.9
Top Investment Sectors - Engineering, Banking/Finance, Oil & Gas, Cement, Metal & Mining
Asset Allocation - Equity (87%), Debt (1.32%), Cash (11.15%)
2) Sundaram BNP Paribas Tax Saver
NAV: 21.77 (Dividend), 45.76 (Growth)
Absolute Return
Duration Return (%)
2007...... 65.2
3 year.... 251.3
5 year.... 939.9
Top Investment Sectors - Banking/Finance, Engineering, Metal & Mining, Oil & Gas, Cement
Asset Allocation - Equity (96.30%), Cash (3.70%)
3) Principal Personal Tax Saver Fund
NAV: 213.88
Absolute Return
Duration Return (%)
2007...... 81.8
3 year.... 237.3
5 year.... 674.6
Top Investment Sectors - Engineering, Metals & Mining, Oil & Gas, Banking/Finance, Conglomerates
Asset Allocation - Equity (93.47%), Cash (6.53%)
The returns in the above mutual fund are subject to market performance. These are high risk instrument as entire asset is allocated to equities.
Individuals with Low risk and moderate return can Invest in the below ELSS mutual fund. The fund has an excellent track record and is one of the few funds to withstand the 2000 market crash.
Templeton India Pension Plan
NAV: 18.02
Absolute Return
Duration Return (%)
2007....... 25
3 year..... 74
5 year..... 176.9
Top Investment Sectors - Banking/Finance, Engineering, Conglomerates, Oil & Gas, Telecom
Asset Allocation - Equity (40.59%), Debt (51.73%), Cash (7.68%)
The above stock (Templeton India Pension Plan) has a lock in period of 3 years and a Exit load of 3% if redeemed before the age of 58 years.
This fund can also be considered as an additional pension plan if vested till the age of 58. Consider for a person with average age of 30, Investing Rs. 10,000/- per year for 20 years (Rs. 2 Lakhs), with a average return of 12% per annum can yield you around Rs. 20 Lakhs at the terminal year of the policy.
For Individuals who have already exhausted their tax eligibility, watch out this page for multibagger stock recommendation.
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Friday, December 28, 2007
Best Tax Saving Mutual Fund (ELSS)
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4 comments:
Very informative at the right time!
Thanks a lot Srivatsan.
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