The following is the translation of the article originally published in Mathrubhumi daily on 4-01-2016
ELSS funds are good tax savings instruments if you have a long term investment horizon. ELSS funds invest in equity shares. They work like other mutual funds. The only difference is that you have 3 year lock in period. You will not be able to withdraw the money before the completion of 3 years. You can continue with the scheme even after the completion of 3 years and anytime you can withdraw after the lockin period is over. While the interest from the Tax Saving fixed deposit of banks and NSCs attract tax, the returns from ELSS funds are entirely tax free. But like any other equity investment, there is a risk of losing money in case of adverse market scenario. Ideally you should invest in ELSS funds for goals fall after 5 years.
Axis Long Term Equity Fund
This fund has been the best performing ELSS fund for last few years. The fund predominantly invests in High Growth, Large Cap companies. The fund has a concentrated portfolio of 40 stocks only. It has good side and bad side. If the stocks are good the portfolio can give very high returns and if a few stocks doom, then the overall portfolio returns will drop badly. Jinesh Gopani is the fund manager for last 5 years. The fund manager’s expertise in stock selection and sector allocation are the main reasons for this consistent performance. The current portfolio has stocks with high growth potential. 3 years back if you have invested Rs.10000 it would have been Rs.20660 now yielding compounded annual returns of about 27.36%.
Birla Sun Life Tax Relief 96 Fund
It was a below average performer from 2010 till the beginning of year 2015. In the year 2015 when entire market was doing badly, the fund has given returns of about 9.2%. During the same period BSE 200 index lost 1.5% value. 3 years back if you have invested Rs.10000 it would have been Rs.18409 now yielding compounded annual returns of about 22.56%. The fund has 50 stocks in its portfolio and has a mix of Large, Mid and small cap Growth stocks. The fund takes medium to long term bets. There are 19 stocks which are in the portfolio for a period of more than 5 years. The current portfolio has stocks which are poised to do well in the coming years. Atul Garg is the fund manager and he is managing it for last 9 years.
While investing it is better to select growth option of the schemes. Also consider investing in direct schemes by contacting the Mutual funds directly. Investing in direct schemes can increase your returns by 0.6% to 1%.