Is it prudent to keep your money in a tax-saving mutual fund scheme beyond the mandatory lock in period of three years? A large number of investment experts think otherwise. They believe that transferring the money from a tax-saving scheme to a diversified scheme after the lock-in period would help you as an investor to maximise your returns as most tax-saving schemes are trailing diversified schemes on returns posted in the three- and five year periods.
Tax-saving schemes or equity linked saving schemes (ELSS) qualify for tax deduction of up to Rs 1 lakh under section 80C of the Income Tax Act.
Though we recommend ELSS because of the prospects of getting better returns among available options under section 80C, we don’t encourage staying invested in it beyond the mandatory period. Financial advisors maintain that ELSS can deliver double digit tax-free returns after the lock in period, whereas most other tax saving options — mostly government-backed investments like PPF, NSC, etc — offer only 8% returns. However, they add that ELSS is still not a wise option for long-term investment as these schemes fall behind diversified schemes. If you look at average returns, you will find that diversified funds score over tax saving schemes in the long term.
A look at category average figures don’t support the theory. According to Valueresearch, an independent mutual fund tracking firm, while ELSS has returned around 6.7% and 20.9% in the last three and five years, the corresponding figures for diversified schemes were 7.3% and 23% — not a major difference to worry about.
However, experts point out that the number of funds that gave double-digit returns in the ELSS category is much less than the diversified sector. Valueresearch data shows that only 8 tax-saving schemes managed to post double-digit returns (10-18%)in the last three years, whereas 58 diversified schemes managed to give between 10 and 24% in the same period. The difference is even more striking in the five-year performance: 90 diversified schemes gave double-digit returns (10-32%) versus only 55 ELSS products that managed the same feat (10-24%). Take Your Pick While ELSS has returned around 6.7% and 20.9% in the last three and five years, diversified schemes’ figures stood at 7.3% and 23% Only 8 tax-saving schemes gave double-digit returns (10-18%) in the last three years, whereas 58 diversified schemes gave 10-24% In the five-year period, 90 diversified schemes gave double-digit returns versus only 55 ELSS plans
Tax-saving schemes or equity linked saving schemes (ELSS) qualify for tax deduction of up to Rs 1 lakh under section 80C of the Income Tax Act.
Though we recommend ELSS because of the prospects of getting better returns among available options under section 80C, we don’t encourage staying invested in it beyond the mandatory period. Financial advisors maintain that ELSS can deliver double digit tax-free returns after the lock in period, whereas most other tax saving options — mostly government-backed investments like PPF, NSC, etc — offer only 8% returns. However, they add that ELSS is still not a wise option for long-term investment as these schemes fall behind diversified schemes. If you look at average returns, you will find that diversified funds score over tax saving schemes in the long term.
A look at category average figures don’t support the theory. According to Valueresearch, an independent mutual fund tracking firm, while ELSS has returned around 6.7% and 20.9% in the last three and five years, the corresponding figures for diversified schemes were 7.3% and 23% — not a major difference to worry about.
However, experts point out that the number of funds that gave double-digit returns in the ELSS category is much less than the diversified sector. Valueresearch data shows that only 8 tax-saving schemes managed to post double-digit returns (10-18%)in the last three years, whereas 58 diversified schemes managed to give between 10 and 24% in the same period. The difference is even more striking in the five-year performance: 90 diversified schemes gave double-digit returns (10-32%) versus only 55 ELSS products that managed the same feat (10-24%). Take Your Pick While ELSS has returned around 6.7% and 20.9% in the last three and five years, diversified schemes’ figures stood at 7.3% and 23% Only 8 tax-saving schemes gave double-digit returns (10-18%) in the last three years, whereas 58 diversified schemes gave 10-24% In the five-year period, 90 diversified schemes gave double-digit returns versus only 55 ELSS plans
