Why share-based savings plans make more sense than ordinary shares

Tax-privileged investment funds, better known as ELSS (Equity Savings Program), performed well as of June 20, 2016. The average performance was encouraging and the performance was positive compared to 16% of the BSE Sensex index and 21% of the large cap category. In fact, a large number of funds in the tax savings category have reported more than 30% in the last year.

However, the exceptional performance of tax savers is no deviation. On the one hand, they beat their competitors for a long time, up to 10 years (see chart: How they happen). Over the past five years, these funds accounted for 20% of the 13% of the total market, which means that if you had invested Rs. 1 lakh during that period, your body would have reached Rs 2.48, whereas the market would generally be Spot. They would have Rs 1.84 lakh.

Why ELSS is different

What differentiates these funds from the usual diversified equity funds is that ELSS guarantees tax exemptions and a chance of capital appreciation, “said Lakshmi Iyer, Chief Investment Officer (Debt) and Product Manager at Kotak AMC .. Low taxpayers receive tax deductions under Section 80C of the Income Tax Act and an investment of up to 1.5 lakh of your ELSS investment can be tax efficient while you save up to Rs 45,000 per year (assuming you are in the highest tax bracket and save 30% on Rs 1,50,000) However, ELSS does not have an investment cap and the exemption does not apply to ordinary equity funds, although ELSS and common equity funds are authorized to tax long-term net capital gains (LTCG) Dividends from both types of funds are tax-exempt for investors.

Like other equity funds, taxpayers invest in large and medium-sized companies and your investment strategy should take this into account. However, these funds have a three-year maturity, as opposed to a diversified equity fund that allows exit at any time subject to the applicable redemption fees. However, the suspension is beneficial to ELSS as fund managers can invest longer term without worrying about liquidity. If you opt for a systematic investment plan or SIP in this area, each investment will be suspended for three years.

Hack performance, strategy

Before you invest your money in ELSS, determine your priorities. Are you looking for short-term goals and would you like to sell as soon as the lock-in is over? However, creating wealth requires medium and long-term investment, and you need to find a fund that fits your goals (see table: Best funds to save on taxes).

Longterm goal

Take, for example, the Axis Long Term Equity Fund, which has a unique strategy of identifying equities over a longer period of three to five years and investing in equities. Such a strategy will ensure that the fund invests in sustainable, high-quality stocks with constant growth potential and seeks long-term growth in the face of short-term earnings volatility, according to Jinesh Gopani, Axis Mutual Fund’s Head of Equities. and / or the performance of the shares.

Since its inception, the fund has built a stable and compact portfolio focused on identifying these opportunities in the marketplace. As so often, 2016/17 was a bad year as beta and low quality stocks performed better. Demonetisation also hit the Fund as market uncertainty weighed on some of its most important allocations in the financial and consumer sectors. But he has recovered well now. Although the 20% return last year was not high enough to beat the best players, the general point remains – sustainable growth – with the fund posting solid 25 of the best five-year returns. Years counts the return percentage.

Gopani estimates that the Fund’s position will be linked to domestic demand growth over the next two to three years. Therefore, it focuses on private banks and non-bank financial companies (NBFCs) as well as durable consumer goods (including automobiles) as the main allotments. The fund manages a multicap portfolio with increasing allocations to the market when opportunities arise. The typical large-cap allocation has been 60 to 70% over the years.

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