10 reasons Why we are obsessed about ELSS mutual funds

#ELSS is a clear winner amongst the Tax saving instruments in India 

Under section #80c of the Income tax act, there are many instruments one can opt for to save tax and create a wealth kitty. In the last post on Tax saving instruments under section 80C, I have listed down all the options of investments, insurance and expenditures. Here, I would like to elaborate on the specific product “Equity Linked savings scheme” Mutual Funds, and a basic comparison with the other options in terms of liquidity, lock-in, potential return etc.

Let me begin with the table of popular investment tools under 80C and their features.

Instrument	Maximum investment amount	Lock-in	Potential return	Actual tax benefits
#PPF	Rs. 1,50,000	15 years.	8-9% per annum, compound interest	Triple exemption benefit
Sukanya Samrudhi Yojana	Rs. 1,50,000	Only for daughters, the lock in depends on the daughters age	8-9%, compound interest	Triple exemption benefit
NSC	Rs. 1,50,000	5 years	8-9% per annum, compound interest	Returns are taxed as per laws
#Tax saver Deposits	Rs. 1,50,000	5 years	7-9% per annum, compound interest	Returns are taxed as per laws
#ULIP	Rs. 1,50,000	10 years onwards.	As per equity market movement. After deducting various charges	Triple exemption benefit
#ELSS mutual funds	Rs. 1,50,000	3 years	As per equity market movement.	Triple exemption benefit
#RGESS	Rs. 50,000	3 years	As per equity market movement.	50% tax relief on returns

1. The mutual fund has minimum #lock-in period of 3 years amongst the tax saving instruments.

2. Though it has a lock-in period, the open ended #ELSS funds, don’t have a maturity date.

3. The funds come with multiple options of growth, dividend option (dividend reinvestment is currently discouraged by the regulator in recent times, hence getting discontinued for the new investment options, because of its complex nature of 3 year llock-in for every purchase)

4. The ELSS schemes enjoy triple tax exemption benefits on redemption

5. Unlike PPF, ULIP, ELSS mutual funds don’t carry an obligation of investment amounts, hence it could be an one time investment or repeat depending on investor’s wish. 

6. Unlike insurance plan, investor can buy different plans basis his research and recommendations

7. Minimum investment is as low as Rs. 500/-

8. The dividend earnings are tax-free in the hands of the receivers  

9. It can be held as long as the investor wants; hence, the potential of high returns of 12-15% can be easily achieved in long-term, 5-7 years period.  

10. The cost of investment is very low compared to the insurance products (<3%) which doesn’t reflect  too much as the returns on the investment over a long term compensate well beyond the cost implications and inflation.  

A hypothetical return graph of tax saving instruments over 3, 5, 7.10 year period

	initial investment	3 YEARS	5 YEARS	7 YEARS	10 YEARS
PPF	1,00,000	130864	156568	187320	245135
NSC	1,00,000	127023	148984	174742	221964
ELSS	1,00,000	156394	210718	283911	444021

Assuming a 15% return on ELSS for the period

Top 5 #ELSS Mutual funds for reference purpose -

Scheme name	1 year	2years	3 years	5 years
ICICI Pru RIGHT Fund (G)	10.9	7.2	24.4	21.2
Axis Long Term Equity Fund (G)	8.8	9.2	26.5	21.0
Reliance Tax Saver (ELSS) (G)	13.9	6.2	29.9	20.4
DSP-BRTax Saver Fund (G)	20.1	12.7	25.5	19.7
Birla Sun Life Tax Plan (G)	12.6	12.3	24.5	18.1

Suggestion for the young investors would be to buy ELSS fund, and treat it like  a PPF account, invest regularly, preferably through SIP, for 15 years and stay invested through the term. You will end up saving a big amount for yourself. :) Happy investing. Happy Saving! 

Is it Indian PSU banks, who will bleed the streets? Just a thought!

 #Banking in India will be the next Boom n Bust story??

#Stock market fall is an effect and not a cause! What happens when there is too much of excitement and attention to one sector/industry/company/ business idea? everybody starts appreciating, following, taking extra effort to get into the scheme of things etc.. untill there is a there is a peak and BOOM! And a sharp slope slides down n BUST! and a parallel line leveling the fields and world moves on towards a new exciting subject. In financial market or the larger context of economy, it is extremely evident.

Strangely we all keep looking back at history all the time, yet fail to gauge the impending risks. Time and again it repeats itself, we all educated investors close our eyes and follow whatever the markets leads us to.

In the world history of economic crisis, since 13th century, 2/3rd of the crisis started at bank failures or debt crisis, barring a few which were due to trade deficits, industrial revolutions and a few wars. The amazing fact remains that though there were so many debt driven crisis in last 8 centuries, we just don't stop repeating ourselves.

Yes we do try. By creating central banks, but, sovereign debts fail too. We have credit rating agencies, then happens the SUBPRIME CRISIS.

Then come more regulations, more tightening by the central banks! Banks seem to become victims of these regulations and the business targets and margins as well. Then the greed takes over bankers race to aggresive lending to stretch the balance sheets.

The recent developments in the Indian Banking sector is alarming, a little better than what it was two years back though. Two important parameters of performance is leaving the especially the PSU banks high and dry! would they survive?

1. The Basel III norms - a very difficult set of guidelines set by the central bank on capital adequacy to brace for crisis, is an extreme stressful for banks. Banks of India have been issuing the Perpetual Bonds to meet tier I capitalas per Basel norms. coupon rrates of few bonds have been as high as 11%. With no maturity dates ateacher on thad a bones,  could easily become a excess burden of interest payout as interest rate continues to fall.

2. Greed of bankers to inflate the balance sheets - Mounting NPAs caused by disbursing loans to less credit worthy entities is showing signs of failures, unending restructure and failure to get adequate risk cover through collateral.

Thanks to the watchdogs of Indian financial sector, it may not just do a Boom n bust and averted a crisis just in time! but an area to trade carefully. just a thought!