Credo Capital

Who does not want to save taxes? All of us i’m sure.

But, do you know the best way to save tax? I’m sure your reply is PPF, Insurance policies, you have heard this thing called ELSS Funds or Mutual Funds which let you save tax too but you thought they were ‘risky’ and hence did not invest.

I will leave insurance out as i believe insurance is not meant for investments and is for protection. Mixing both is not a great idea ( it is as if expecting your helmet to give you returns ! it is there to protect you and not give you returns!)

That leave us with PPF and ELSS ( I will leave out the other options such as NSC, Sr Citizen scheme etc as they are not that popular)

PPF tenure is 15 years and return is  8.70%, it is doubtless a great investment that gives both tax saving and tax free returns and judging by the many people diligently updating their ppf passbooks in banks regularly, it is very popular too.

This leaves us with the ELSS, the neglected cousin in the Sec 80c family.

Over last 15 years ELSS funds have given around 15% ( the lowest returns among funds completed 15 years is 15.7% and highest is 21%) , let us assume only 15%, after 15 years that 1 lac is Rs. 8.1 Lacs as opposed to PPF return of Rs.3.49 Lacs ( slightly more than this PPF rates in 2000 was 11% but was reduced to 9% next year so it varies).

One can argue that we have chosen one particular time frame ( 2000-2015) where as return could be different for other time sets say 1999-2014 etc. It could be a valid argument but I really doubt if ever on any 15 year period one got lower returns than PPF, the oldest ELSS Funds are Canara Robeco and SBI Taxgain both around since 1993 and have given around 15% and 18% p.a returns since 1993.

Going by the returns one would think that people would be queuing up to buy ELSS funds but no, the entire category of ELSS schemes has something like 38k cr totally while PPF is 1.8 Lac cr

The reason for not many investing in ELSS is that they don’t know about it and those who know think it is risky ( it is risky, but one can always invest some amount in ELSS along with PPF, say 30% or 50% of what you put in PFF and forget about it for 15 years)

The best way to get the full benefit of ELSS Funds would be to start a SIP ( Systematic Investment Plans ) and monthly invest in it, do that for 15 years to get both tax breaks and tax free returns as returns from equity funds are tax free too after 1 year.

Before i end with the usual disclaimer of Mutual funds are subject to market risks and past performance may not be repeated in future, please read the scheme documents carefully etc.  do remember that the biggest risk would be the risk of not investing in equity and missing out on the great returns it has and can still provide.

Notes : ELSS funds are locked in for 3 years but to get full benefit of it better invest for 10-15 years time frame, tax rules be it for PPF and ELSS are as of today and may change in future.