Source - Moneycontrol
Investments in an Equity-Linked Savings Scheme (ELSS) of a mutual fund have yielded higher returns compared to other instruments like PPF and NSC in the last few years, a report by Crisil has said.
"Our analysis shows that ELSS gave 26% and 22% annualised returns over three and 10 years, respectively, vis-a-vis 8-9% offered by traditional tax saving investment products such as public provident fund (PPF) and national savings certificates (NSC)," Crisil said.
Crisil added that interest on employees provident fund (EPF) for 2011-12 was slashed to 8.25% from 9.5% in the previous year and thus ELSS can act as a strong alternative to investors.
Though the traditional debt products are considered to be relatively safer bet as they are not affected by volatility, they are unable to generate higher inflation-adjusted returns in the long run.
The PPF accounts fetched 8.12% over the last 10 years and in the similar period, the NSC gave an interest of 9.10%. The average inflation over the past 10 years stood at 6.05%.
"ELSS is not only an attractive option to save tax, but also helps create wealth over the long run. ELSS as a category has outperformed the Nifty 500 across three and 10 years. With average inflation around 7% over the past three years, top Crisil-ranked ELSS gave an inflation adjusted return of 14%, which is significantly higher than returns offered by other tax saving products," Crisil's senior director Mukesh Agarwal said.
The rating agency, however, cautioned that the ELSS investment requires some amount of market risk and had to cherry pick those schemes which have performed consistently well.
"Since investments in ELSS are subject to market risks, investors must take into consideration their age and risk-taking abilities. The investment horizon should be more than five years for higher inflation-adjusted returns.
Further, investors must choose funds that have performed well both in good and bad times," Crisil head for Funds and Fixed Income Research Jiju Vidyadharan said.
It said ELSS is not eligible for tax benefits under the DTC, but since the implementation of the new tax regime has been postponed, investors can park their funds in these equity schemes for now.
I dont think so ..I have following ELSS (year 2008)
ReplyDelete1) DSP BlackRock tax saver (Growth)
2) Kotak Tax saver (Grwoth)
Till date I cant see my invested amount is recovered yet..Forget about returns ..
Dear Manoj,
ReplyDeleteEquity does not provide fixed returns, therefore you need to be disciplined investor to make returns. You talked about only 2 MFs which went wrong in terms of timing the market, if only you had invested it SIP way or continued investing into Equity every year then my article holds true. Say if you had invested same amount in same MFs but next year i.e.2009 same time then you would have more than doubled your money, take average with this bad investment call YOU made you were still sitting on over 50% gain.
Again NAV of these MF were equal to 2008 NAV during recent market high OCT-NOV 2010, if you still did not withdrawn your money in early 2011 then You would not have lost money during downturn in 2011. You must accept your own mistakes with grace and be discplined in terms of investments, SIP route prefered or even investments every year is advisable, law of averages will take its effect to give you average returns that I talked about in above article.