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MF POINTERFor Private Circulation only
ELSS Invest with a Long Term horizon
Issue - 98 February, 2014
February, 2014 Smart investing starts here 1
Ventura Research Desk:
The article for this month ELSS Invest with a Long Term Horizon highlights about an additional
way to save taxes by investing in ELSS mutual funds over and above the traditional instruments.
It focuses on how beneficial it is to invest in equities provided you have a long term investment
horizon. Turn to page 2 for details on the performance of various mutual fund categories in the
industry. Top performing equity and debt mutual fund schemes are highlighted on Page 6 & 7.
Happy Investing!!
Juzer Gabajiwala
Markets:
The Indian bourses rebounded sharply in February, with key benchmark indices the Sensex
and Nifty - soaring by 2.96% and 3.08%, respectively. Indian equity markets made a slow
start but, later bounced back and closed the month with good gains. Initially, markets
remained subdued after the Government revised the GDP growth rate downwards from 5%
to 4.5%. Weak global cues also drove markets down. However, markets gained as investors
cheered the interim budget announcements made by the Finance Minister P Chidambaram.
Traders also welcomed the Government's resolve to contain the fiscal deficit at a target of
4.6% of GDP in 2013-14 and 4.1% of GDP in 2014-15. Markets rose further after the data
showed that Foreign Institutional Investors (FIIs) remained net buyers of Indian equities.
On the macro economic front, India's industrial output dropped by 0.6% in December,
registering a contraction for the third consecutive month, due to a decline in manufacturing
production. However, on a brighter note, consumer inflation for January eased to its lowest
level in two years, from 9.87% in December to 8.79% in January; the moderation came
mainly on the back of a fall in food prices.
In the case of bond markets, the benchmark 10-year bond yield closed at 8.86% for the
month of February 2014 as liquidity concerns ahead of the financial year end dampened
investor sentiments. Weakness in the rupee also pushed bond prices higher. However, yields
found some support after the Government announced slightly lower borrowing numbers and
a better-than-expected fiscal deficit target in the Interim Budget report.
According to data released by the Securities
and Exchange Board of India (SEBI), FIIs
continued to remain net buyers in the
equity segment during the month. They
bought equities to the tune of Rs. 1,404.30
crore against Rs. 714.30 crore recorded in
the previous month, while domestic
mutual funds remained net sellers in the
Indian equity markets, to the tune of Rs.
1,207.50 crore (upto 24th Feb, 2014).
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MF POINTER
February, 2014Smart investing starts here2
Category returns: For the month of February 2014, all of the categories posted positive
returns. Meanwhile, the top five category gainers were Equity - Pharma, ELSS, Contra,
Infrastructure and Diversified. These categories generated absolute returns in the range of
3.57-7.62%. However, the bottom categories were Gilt, Income and Floating rate funds. These
three categories merely rose by 0.01%, 0.28% and 0.64%, respectively, during the month.
*Returns as on 28-Feb-2014
Top 5/Bottom 5
Equity Schemes
Top Performers Under Performers
Absolute Absolute
Scheme Name Ret. % (1M) Scheme Name Ret. % (1M)
PineBridge World Gold Fund 11.97 Baroda Pioneer PSU Equity Fund (1.92)
DSPBR World Gold Fund 9.60 SBI PSU Fund (1.60)
PineBridge Infra & Eco Reform 7.32 DSPBR Natural Res & New Energy (0.55)
Mirae Asset Emerging BlueChip 6.91 GS PSU Bank BeES (0.50)
ICICI Pru Midcap Fund 6.54 Kotak PSU Bank ETF (0.50)
Debt Schemes
Top Performers Under Performers
Annualised Annualised
Scheme Name Ret. % (1M) Scheme Name Ret. % (1M)
ICICI Pru Moderate 33.95 ICICI Pru Gilt-Treasury-PF (19.57)
ICICI Pru Cautious 17.10 DWS Inflation Indexed Bond (15.41)
IDFC Asset Alloc-Mod 15.89 DWS Gilt Fund (12.96)
FT India Life Stage FOFs-40 15.34 Baroda Pioneer Income Fund (8.07)
Religare Invesco Gilt-Long Duration 14.34 Baroda Pioneer Dynamic Bond (7.94)
*Returns as on 28-Feb-2014
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MF POINTER
February, 2014Smart investing starts here4
With the financial year coming to an end, most of us are in the process of finalizing avenues to
invest, which will give us a tax deduction of up to Rs 1 lakh under Section 80C.
Over the years, many individuals have started investing in equity linked savings scheme (ELSS)
under Section 80C. This is because along with the tax deduction, the investor also enjoys the
potential upside of investing in the equity markets. But wherever there is a potential for an
upside, there is also the possibility of a downside.
However, quite often ELSS is not looked at as an investment product that should be held for the
long run, beyond the 3 years lock-in period which enables a tax break. Investors tend to
withdraw their funds after getting the tax break. Although, ELSS is a great way to save taxes,
staying invested in equity for just 3 years does not usually deliver the best possible returns.
Time and again, studies have shown that to get the best benefits from equity, the longer the
investment term, the better the returns and the lower is the possibility of negative returns.
Hence it is ideal to look at this product for at least 10-15 years.
To draw an analogy (please note it is not a comparison): We are comfortable putting money in
PPF for a fixed return (which has a 7 year lock-in and tenure of 15 years). We also purchase
insurance policies, wherein we pay yearly premium and our money is locked-in for the term of
the policy. Though we may consider these as safer bets, as they are not affected by volatility, the
biggest risk is that they are unable to generate inflation-adjusted real returns over the long run.
So then why not look at equity as a part of your long term corpus? This asset class has proven to
be the best performer over the long term. The icing on the cake is that no tax is levied on the
long term capital gains from equity funds and dividends are tax free too.
ELSS Invest with a Long Term horizonELSS Invest with a Long Term horizon
ELSS Category 1 Yr 3 Yrs 7 Yrs 15 Yrs
Weighted Average Returns 11.62 8.26 5.83 3.47
Best ELSS Fund 20.96 15.56 11.89 20.15
Worst ELSS Fund 3.23
CNX Nifty 3.49 6.01 6.21 12.68
(1.23) (6.02) (5.25)
%CAGR Returns as on 17-Feb-2014. SIP of Rs. 10,000 per month.
We believe that instead of making a lump sum investment just for the sake of tax saving,
investors should stagger their investments from the start of the financial year. Ideally, you
should choose a fund for investment purposes based on different investment time frames and
fund corpuses.
In many cases investors tend to exit an ELSS investment once the lock in period is complete
because they suffer notional losses due to market fluctuation or due to poor selection of funds.
While the three year milestone can be used to review the performance of an ELSS investment, it
should not be used as an automatic exit point.
Holding ELSS for a period of 7 years, as the data clearly shows, is better than stepping out at the
end of 3 years. But look at the benefits of staying invested for 15 years. It is not only more
fruitful for investors in terms of returns but it reduces the probability of facing negative returns
as well. A minimum of 10-15 years is an ideal horizon for any ELSS investments, mainly because
it gives the fund manager the room to take a long term view on the market and invest
accordingly, as is clearly reflected from the long term returns.
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MF POINTER
February, 2014 Smart investing starts here 5
Scheme Name AUM 1 Yr 3 Yrs 7 Yrs 15 Yrs
(Rs.Cr.)
Axis LT Equity Fund 854.05 20.96 15.56 - -
Birla SL Tax Plan 115.89 12.01 9.35 7.42 -
Birla SL Tax Relief '96 1382.70 12.63 9.29 - -
BNP Paribas Tax Adv Fund 155.71 8.99 10.23 8.21 -
BOI AXA Tax Adv Fund 30.64 14.40 9.29 - -
Canara Rob Equity Tax Saver Fund 599.82 4.47 6.64 - -
DSPBR Tax Saver Fund 718.18 10.52 9.81 9.44 -
DWS Tax Saving Fund 40.94 5.29 6.81 4.44 -
Edelweiss ELSS Fund 25.17 11.53 10.23 - -
Escorts Tax 2.50 3.33 -
Franklin India Taxshield 949.88 10.08 8.66 10.58 -
HDFC Long Term Adv Fund 846.23 16.00 10.38 10.44 -
HDFC TaxSaver 3,423.37 12.66 6.13 8.88 20.15
HSBC Tax Saver Equity Fund 161.58 9.96 9.32 8.81 -
ICICI Pru Tax Plan 1,541.09 17.37 10.99 11.89 -
IDFC Tax Advt(ELSS) Fund 165.59 15.73 12.38 - -
ING Tax Savings Fund 21.18 4.03 3.43 5.27 -
JM Tax Gain Fund 27.12 4.04 4.46 - -
JPMorgan India Tax Advantage Fund 5.08 6.14 5.16 - -
Kotak Tax Saver Scheme 327.19 0.88 3.43 -
L&T Tax Advt Fund 1,083.41 4.28 5.38 8.95 -
L&T Tax Saver Fund 26.24 13.19 6.29 5.13 -
LIC Nomura MF Tax Plan 27.73 9.34 6.75 4.71 8.75
Quantum Tax Saving Fund 15.57 9.85 9.32 - -
Reliance Tax Saver (ELSS) Fund 1,881.90 14.11 7.40 9.27 -
Religare Invesco Tax Plan 138.10 13.10 9.68 11.22 -
Sahara Tax Gain Fund 10.64 19.03 8.22 9.94 3.23
SBI Magnum TaxGain'93 4,021.74 12.39 9.47 - -
Sundaram Tax Saver 1,090.90 1.70 4.55 6.06 -
Taurus Tax Shield Fund 84.62 3.91 3.89 7.50 11.05
Union KBC Tax Saver Fund 55.27 5.67 - - -
UTI ETSP Fund 399.61 5.34 5.95 5.90 -
(6.02) (5.25)
(1.23)
Hence, equity can be a risky investment if you're investing for a short period of time, but with time on your
side, equity is extremely rewarding.
-
Debt and Hybrid Funds Corpus NAV (`) Annualised(%)
( Crs)# Gr Div 3 mths 6 mths 1 yr
Income Funds
Birla SL Medium Term Fund 2,209.74 15.05 11.15
Taurus ST Income 172.38 2,215.94 1,528.49
Birla SL ST Opportunities Fund 2,530.81 20.29 12.98
Ultra Short Term Plan
Templeton India Ultra Short Bond Fund 3,537.05 16.70 10.09
DWS Ultra Short Term Fund 2,307.70 15.17 11.32
Taurus Ultra ST Bond Fund 117.50 1,520.90 1,002.40
Gilt Funds
Sundaram Gilt Fund 31.23 20.89 11.96
DSPBR Treasury Bill Fund 474.69 25.81 10.35
Liquid Funds
Principal Retail Money Mgr 18.74 1,431.86 1,059.87
Religare Invesco Overnight Fund 10.38 1,493.79 1,001.36
Escorts Liquid Plan 195.33 19.70 15.04
Hybrid - Monthly Income Plans(MIPs)
Birla SL MIP II-Wealth 25 185.54 22.30 11.56
LIC Nomura MF MIP 79.86 38.65 10.41
Crisil Liquid Fund Index
Crisil Composite Bond Fund Index
`
9.43 13.86 10.40
9.31 10.20 10.08
8.45 12.53 10.00
9.61 10.85 10.17
8.75 11.03 9.99
8.87 10.82 9.98
10.85 13.02 18.21
7.68 9.24 10.07
9.36 10.25 9.82
8.18 8.80 9.75
9.57 10.16 9.65
8.86 20.95 8.97
7.71 12.07 8.93
8.69 10.31 9.15
5.53 11.06 3.17
MF POINTER
February, 2014Smart investing starts here6
Performing Mutual Fund Plans
*Returns are annualized as on 28th February 2014
# Monthly Corpus as on January 2014.
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MF POINTER
February, 2014 Smart investing starts here 7
Performing Mutual Fund Plans
Equity and Hybrid Funds Corpus NAV (`) CAGR (%)
( Crs)# Gr Div 1 yr 3 yrs 5 yrs
Equity - Large Cap
Religare Invesco AGILE Fund 35.61 8.48 8.50
LIC Nomura MF Growth Fund 65.68 14.64 12.98
Birla SL Top 100 Fund 317.85 28.28 13.31
Equity - Multi cap
Birla SL India Opportunities Fund 45.41 69.09 19.26
Tata Ethical Fund 125.56 87.49 52.51
Equity - Mid & Small cap
SBI Magnum MidCap Fund 215.93 32.77 18.15
Reliance Small Cap Fund 345.79 12.13 11.09
UTI Mid Cap Fund 255.25 40.46 27.59
Equity - Sectoral
ICICI Pru Technology Fund 210.63 38.87 28.68
ICICI Pru Exports & Other Services Fund 262.44 29.63 20.03
Tax Saving Scheme(ELSS)
Axis LT Equity Fund 854.05 17.79 14.18
ICICI Pru R.I.G.H.T Fund 56.01 18.05 16.27
Religare Invesco AGILE Tax Fund 6.44 9.24 9.24
Balanced Fund
HDFC Children's Gift Fund-Invest 440.97 58.85 58.85
HDFC Balanced Fund 1,197.12 27.14 19.54
Sensex 21,120.12
Nifty 6,276.95
`
20.80 9.83 15.18
15.82 6.09 19.20
15.46 9.94 20.80
36.43 10.55 26.66
21.72 13.31 27.23
29.50 17.01 29.63
25.80 10.15 -
25.35 12.43 27.74
58.42 23.18 42.86
54.56 22.37 30.83
26.37 15.65 -
20.57 16.61 -
19.07 8.41 13.01
21.17 14.46 26.56
18.00 8.41 16.27
11.97 5.81 18.87
10.26 5.58 17.81
*Returns are compounded annualized as on 28th February 2014
# Monthly Corpus as on January 2014.
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MF POINTER
February, 2014Smart investing starts here8
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This document is solely for private circulation only. Mutual funds like securities investments are subject to market risks
and other risks. Investors are advised to read the offer document before investing.
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