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Top 5 ELSS schemes to invest in 2011-12

 

In our market 71 equity linked savings schemes (ELSS) are floating from various asset management companies. Most investors generally search for best performing ELSS schemes between January and March for investment and to save tax because the financial year is coming to end. Investors are in dilemma while searching the best available fund based on their goals and risk taking capability. In this article, your confusion will be reduced since performance of “Best ELSS mutual fund schemes in 2011-12”is reviewed.

SIP best way to invest in ELSS

 

As discussed, most investors generally rush to invest in ELSS schemes with lump sum amount between January and March. This is not the right way to invest in mutual fund schemes. To gain maximum benefit it’s recommended to invest regularly throughout the year by following systematic investment plan (SIP). This will take care of volatility in the index and invests a particular amount regularly into your fund for tax saving.

However, there is a 3 year lock-in period for ELSS investments i.e. any investment that you make in ELSS schemes cannot be liquidated before 3 years. So, while opting for SIP in particular ELSS scheme the fund considers separate 3 year lock-in period for each SIP installment. For example, the 3 year lock in for the units bought on 5th January 2012 would end on 5th January 2015, for the units bought on 5th February 2012 would end on 5th February 2015, and so on.

Table with top performing ELSS schemes in 2011-12

Table with top performing ELSS schemes in 2011-12

 

§ Religare Tax Plan (G)

  • Asset allocation: 80% in equities and 20% in debt instruments. In equity ~60% is invested in large cap and ~40% in mid cap.
  • Investment style: Bottom up approach
  • Top Sectors: Financial services, energy, technology, FMCG and services which constitutes around 65% of total portfolio.
  • Top holdings: ICICI Bank, Infosys, Reliance Industries, HDFC Bank and ITC which makes up ~27% of net assets in the fund.
  • Performance: Aggressive towards investment in mid cap and small cap stocks. The fund has outperformed its peers with fare returns in last 5 years.

 

§ Canara Robeco Equity Tax Saver (D)

  • Asset allocation: 85% in equities and 15% in debt instruments. In equity ~70% is invested in large cap and ~30% in mid cap.
  • Investment style: Mixture of top down approach and bottom up approach.
  • Top Sectors: Financial services, energy, technology, FMCG and construction which constitutes around 65% of total portfolio.
  • Top holdings: HDFC Bank, Infosys, Reliance Industries and Tata Consultancy which makes up ~20% of net assets in the fund.
  • Performance: Aggressive towards investment in mid cap stocks and diversifies its portfolio by investing in various sectors. The fund gave ~21% annualized returns in last 10 years and its outperforming peers / benchmark index in last 5 years.

 

§ Fidelity Tax Advantage fund (G)

  • Asset allocation: 80% in equities and 20% in debt instruments. In equity ~80% is invested in large cap and ~20% in mid cap.
  • Investment style: Bottom up approach.
  • Top Sectors: Financial services, energy, technology, FMCG and healthcare which constitutes around 70% of total portfolio.
  • Top holdings: HDFC Bank, ICICI Bank, Reliance Industries, Infosys and ITC which makes up ~30% of net assets in the fund.
  • Performance: This fund invests is tilted towards investment in large cap stocks which is giving consistent performance among its peers and benchmark index. However, the performance of this fund is affected when there is rally in mid cap stocks.

 

§ Franklin India Taxshield Fund (G)

  • Asset allocation: 80% in equities and 20% in debt instruments. In equity ~70% is invested in large cap and ~30% in mid cap.
  • Investment style: Bottom up approach.
  • Top Sectors: Financial services, energy, technology, telecommunication and automobile which constitutes around 65% of total portfolio.
  • Top holdings: HDFC Bank, ICICI Bank, Reliance Industries, Infosys, Grasim Industries and Bharti Airtel which makes up ~35% of net assets in the fund.
  • Performance: This fund is idle for conservative investors due to its investment style skewed towards large cap / blue chip stocks. In last 10 years the fund gave ~24% annualized returns to its investors outperforming benchmark index.

 

§ HDFC Taxsaver Fund (G)

  • Asset allocation: 80% in equities and 20% in debt instruments. In equity ~60% is invested in large cap and ~40% in mid cap.
  • Investment style: Top down approach.
  • Top Sectors: Financial services, energy, technology, FMCG and healthcare which constitutes around 70% of total portfolio.
  • Top holdings: State Bank of India, ITC, Tata Consultancy Services, Infosys, ICICI Bank and Bharti Airtel which makes up ~30% of net assets in the fund.
  • Performance: This fund is invested towards mid cap stocks which makes it aggressive in this category. The return in last one year is affected due to more exposure towards banking stocks which were under pressure on account of liquidity tightening by central bank. In last 10 years the fund gave ~28% annualized returns to its investors outperforming benchmark index and peers in the category.

Interpretation of risks while investing in this schemes

Looking at returns shall not be the only criteria for investments. You need to analyze the risks while investing in these schemes.

Table with interpretation of risks in ELSS schemes

Table with interpretation of risks in ELSS schemes

 

 

Concern over future of ELSS after implementation of Direct Tax Code (DTC)

The government is planning to implement DTC from April 2012 or from next financial year. As per last draft of DTC, ELSS will not be considered as tax saving investments. So, assume if this is a final draft and DTC is implemented from April 2012 then this quarter would be last to invest in such schemes. The investors investing in this financial year will get the tax benefits and amount will be locked-in for 3 years. The expert’s are of the opinion such steps from government is to push investments in new pension schemes (NPS) which could be other alternative to build wealth in the long term and gain tax benefits on investment. However, top AMC’s are trying their best to get approval on tax benefits for investments in ELSS schemes under DTC. So, the future of ELSS is uncertain until final draft of DTC is approved.

 

Author

Hiral Thanawala

Published Feb 20 2012

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