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Equity linked saving schemes have emerged as a compelling tax saving optiom. ELSS or tax-planning funds gained popularity when their exemption limit was increased from Rs 10,000 to Rs 1 lakh in April 2005.
The increase in exemption limit was a good enough trigger for investors to flock towards tax-planning funds and for asset management companies to launch these funds. In December 2006 alone, three funds were launched -- DSPML Tax Saver, Lotus India Tax Plan and HSBC Tax Saver Equity.
Some funds like Birla Sun Life Tax Relief '96 grew by 14 times in just one year. The fund, which was just managing assets worth Rs 21 crore in March 31, 2006, is now a Rs 309 crore fund. Birla Sun Life had acquired this fund from the erstwhile Alliance Mutual Fund in September 2005.
Funds like Sundaram Tax Saver, Magnum Taxgain, HDFC Tax Saver have also more than doubled in size in a year.
The assets under management of tax planning funds, which were Rs 684 crore in March 2005, zoomed to Rs 5,089 crore in March 2006. Further, in March 2007, the AUMs of these funds increased to Rs 8,417 crore, a rise of 65 per cent in one year.
No wonder then, ELSS funds have become a formidable alternative for investors to do their tax planning.
The tax planning funds compare well with diversified equity funds. While the former delivered returns of 51.76 per cent in 2005 and 30 per cent in 2006, the latter delivered a 46.72 per cent return in 2005 and a 34 per cent return in 2006.
Magnum Tax Gain has become the largest ELSS fund in the country with an asset size of Rs 1,664 crore. The fund, whose assets were just above Rs 80 crore two years ago, saw its assets size swell to Rs 705 crore in 2006. The five-star fund (as rated by Value Research) returned 96 per cent in 2005 and 45 per cent in 2006. The fund's performance has propelled it into the number one slot in the ELSS category since 2004.
Asset size (Rs Crore) | ||||
Fund | Launch | Mar '07 | Mar '06 | Mar '05 |
Magnum Taxgain | Mar '93 | 1,664 | 705 | 80 |
Reliance Tax Saver | Aug '05 | 1,511 | 1,196 | � |
HDFC Taxsaver | Mar '96 | 897 | 463 | 44 |
Fidelity Tax Advantage | Jan '06 | 708 | 511 | � |
HDFC LT Advantage | Dec 2000 | 613 | 435 | 93 |
Prudential ICICI Tax Plan | Aug '99 | 603 | 396 | 57 |
Franklin India Taxshield | Apr '99 | 369 | 284 | 127 |
Birla Sun Life Tax Relief'96 | Mar '96 | 309 | 22 | 15 |
UTI Equity Tax Savings | Dec '99 | 259 | 206 | 37 |
Kotak Tax Saver | Oct '05 | 201 | 138 | � |
HSBC Tax Saver Equity | Dec '06 | 179 | � | � |
Sundaram BNP Paribas Taxsaver | Nov '99 | 173 | 57 | 10 |
Principal Tax Savings | Mar '96 | 167 | 156 | 93 |
ABN AMRO Tax Advantage Plan | Dec '05 | 132 | 132 | � |
DSPML Tax Saver | Dec '06 | 129 | � | � |
Tata Tax Saving | Mar '96 | 126 | 119 | 52 |
Birla Equity Plan | Feb '99 | 107 | 84 | 47 |
ING Vysya Tax Savings | Mar '04 | 47 | 33 | 2 |
In terms of asset size, Magnum is followed by Reliance Tax Saver (launched in August 2005), HDFC Tax Saver (Rs 897.28 crore) and Fidelity Tax Advantage (Rs 707.74 crore). HDFC Tax Saver, which had ranked among the five star funds (as rated by Value Research) for quite some time, has slipped in its rankings. The fund, which was ranked number two in the tax-planning category in 2004 and 2005, stood at the tenth rank in 2006 among the 23 tax-planning funds.
Fidelity Tax Advantage, launched in January 2006, has also done well. Its one-year returns (as on April 12, 2007) stood at 13.74 per cent, much more than the category's average of 1.62 per cent.
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