An Equity-linked Savings Scheme (ELSS) has a compulsory lock-in period of three years.

So, you cannot switch before that. Moreover, if you do not intend to invest in mutual funds saving tax, which otherwise is a beneficial proposition, avoid opting for ELSS. Instead, invest in equity diversified funds like HDFC Top 200, Magnum Contra or DSPBR Top 100 Equity. Click here for Cloud Computing Also Read Related Stories News Now

- Banks seek parity with MFs - Loan: Manju Srivatsa - NFOs bring back interest in equity Mutual Funds - Inflows into Equity saving schemes at five-year low - Have a steady start - ELSS: Tax gain with returns I am invested in Sundaram BNP Paribas Capex Opportunities Fund since November, 2007. Its returns are in negative, should I exit?

-Manohar Rao Sundaram BNP Paribas Capex Opportunities Fund is a 4-star rated sectoral fund. It mainly invests in capital goods sector. It has been in the red (minus 10.03 per cent) from November 2007 to February 11, 2010. In 2007, the performance was at its peak. But, in the 2008 downturn, it could not beat its category average. Since then, it seems to be on a recovery mode. If this is the only fund in your portfolio, you must think of getting out. Instead of a sectoral fund, consider a consistent performing equity diversified fund like HDFC Top 200, or DSPBR Equity. What are the advantages of investing in debt funds, when the returns they give are just around eight per cent or less? I believe the same can be attained by investing in a normal fixed deposit (FD).

-Jagadeesh Kumar Kanakala FDs are safer investments instruments because the return is guaranteed. But, the main reason to prefer debt funds over FDs is the tax treatment of gains and income. Any gain or income on FD investment is added to the investor's income and taxed accordingly, irrespective of the investment tenure. So if you are in a higher tax bracket, it works much to your disadvantage.

In case of debt funds, the tenure matters. The gains get added to the income if the fund is redeemed within a year of investment. Any redemption after a year attracts a long-term capital gains tax of 11.33 per cent (without indexation) or 22.66 per cent (with indexation). It is worth to noting that the government levies a Dividend Distribution Tax (DDT) on debt funds, which is borne by the fund house (but ultimately passed on to the investor). This is 14.16 per cent of the dividend declared. Nevertheless, investors benefits by opting for a debt fund for a period of more than one year. I am planning to invest Rs 2,000 via monthly systematic investment plan (SIP). For this, I am considering HDFC Top 200, Reliance Growth, Reliance Vision and Sundaram BNP Paribas Growth Reg. Help me choose suitably.

-Srikanth All the above mentioned funds are equity diversified funds. While HDFC Top 200 and Reliance Growth have been consistent good performers for the past few years, we have some reservations on Reliance Vision and Sundaram BNP Paribas Growth Reg (both rated 3-star). While the former has been an average large-cap fund, the latter had been a poor performer lately, lagging the category average in both, bear and bull markets. We suggest you either increase the SIP amount in the first two funds or include one more fund, may be, DSPBR Top 100 or Birla Sun Life Frontline Equity.

ELSS Mutual Fund Options

I wrote a post on how to find tax saving mutual funds some time ago, and I used that information to get a list of all the ELSS mutual funds currently available in India, and then narrow down options from there. Then I looked at the funds that were around for 5 or more years, and took the 10 best performing out of them. After that I noted their expense ratio, as well as their inception date in the table below. Doing this gave me a list that has some tax saving funds that have been around for a very long period, and have done reasonably well over that period. The expenses are important because they eat up your returns, so I wanted to highlight them as well. The limitation with this list is that it doesnt contain any mutual funds that have been around for less than 5 years even if they performed well. For example DSP Blackrock is a ELSS mutual fund that has been around for about 4 years, has done well during that time, but is missing from this list. Name Birla Sun Life Tax Relief 96 Inception Date March 1996 5 year returns 16.57% 22.31% Expense Ratio 1.96 2.38

Canara Robeco March 1993 Can Equity Tax Saver HDFC Tax Saver ICICI Prudential Tax Plan SBI Magnum Tax Gain Scheme 93 Principal Personal Tax Saver Franklin India Tax Shield Sundaram Tax Saver Sahara Tax Gain March 1996

17.80%

1.86 1.98

August 1999 15.48%

March 1993

16.32%

1.78

March 1996

16.42%

2.19

April 1999 Nov 1999 March 1997

17.34% 17.73% 22.31%

2.10 1.96 2.50

Reliance Tax Saver

August 2005 15.14%

1.88

This list is not sorted in any particular order, and thats deliberate because as soon as you sort something your brain tends to think of it as best to worst from top to bottom, but thats not the case. For mutual funds the best mutual fund is the one that will give you the maximum return for your holding period, but since thats in the future, there is no way to really predict which one will do better than the rest. In the absence of that I compiled a list of long standing performers, and have presented you with that information, and if you think this criteria makes sense, then you can select one or two funds from this list for your investment.

HDFC TaxSaver (ELSS) Investment Objective The investment objective of the Scheme is to achieve long term growth of capital. Basic Scheme Information Nature of Scheme Inception Date Option/Plan Open Ended Equity Linked Savings Scheme with a lock-in period of 3 years December 18, 1995 Dividend Option,Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. NIL Unfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors' assessment of various factors including the service rendered by the ARN Holder.

Entry Load (For Lumpsum Purchases and investments through SIP/STP)

Please click here to go through the addendum. NIL Exit Load No Exit Load shall be levied on bonus units and units allotted (as a % of the Applicable NAV) on dividend reinvestment. Minimum Application Amount For new & existing investors :Rs.500 and in multiples (click here for SIP Details) thereafter. 3 Years from the date of allotment of the respective Units. Lock-In-Period Every Business Day. Net Asset Value Periodicity Normally dispatched within 3-4 Business days Redemption Proceeds

Tax Benefits (As per present Laws)

Current Expense Ratio (#) (Effective Date 22nd May 2009)

Please click for details

On the first 100 crores average weekly net assets 2.50% On the next 300 crores average weekly net assets 2.25% On the next 300 crores average weekly net assets 2.00% On the balance of the assets 1.75% (#) Any change in the expense ratio will be updated within two working days.

Plan Name NAV Date NAV Amount Dividend Option 11 Mar 2012 Growth Option 11 Mar 2012 TOP Investment Pattern The asset allocation under the respective Plans will be as follows : Sr.No. Asset Type 1 Equities & Equity related instruments Debt Securities, Money Market 2 instruments(including cash/call money) (% Of Portfolio) Minimum 80% Maximum 20% Risk Profile Medium to High Low to Medium

Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and and other uses as may be permitted under the regulations and guidelines. The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time. Subject to the Regulations and the applicable guidelines, the Scheme may, engage in Stock Lending activities. Also refer to Section on Stock Lending by the Fund. The ELSS (Equity Linked Savings Scheme) guidelines, as applicable, would be adhered to in the management of this Fund. If the investment in equities and related instruments falls below 80% of the portfolio of the Scheme at any point in time, it would be endeavoured to review and rebalance the composition. Notwithstanding anything stated above, subject to the regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. It may be clearly understood that the percentages stated above are only indicative and are not absolute and that they can vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV of the scheme. Such changes will be for short term and

defensive considerations. Provided further and subject to the above, any change in the asset allocation affecting the investment profile of the Scheme and amounting to a change in the Fundamental Attributes of the Scheme shall be effected in accordance with sub-regulation (15A) of regulation 18 of SEBI regulations. TOP Investment Strategy Debt securities (in the form of non-convertible debentures, bonds, secured premium notes, zero interest bonds, deep discount bonds, floating rate bond / notes, securitised debt, pass through certificates, asset backed securities, mortgage backed securities and any other domestic fixed income securities including structured obligations etc.) include, but are not limited to :

Debt obligations of the Government of India, State and local Governments, Government Agencies and statutory bodies (which may or may not carry a state / central government guarantee), Securities that have been guaranteed by Government of India and State Governments, Securities issued by Corporate Entities (Public / Private sector undertakings), Securities issued by Public / Private sector banks and development financial institutions.

Money Market Instruments include :

Commercial papers Commercial bills Treasury bills Government securities having an unexpired maturity upto one year Collateralised Borrowing & Lending Obligations (CBLO) Certificate of deposit Usance bills Permitted securities under a repo / reverse repo agreement Any other like instruments as may be permitted by RBI / SEBI from time to time

Investments will be made through secondary market purchases, initial public offers, other public offers, placements and right offers (including renunciation). The securities could be listed, unlisted, privately placed, secured / unsecured, rated / unrated of any maturity. The AMC retains the flexibility to invest across all the securities / instruments in debt and money market. Investments made from the net assets of the Scheme would be in accordance with the features of the Scheme and the provisions of the SEBI Regulations. The AMC will strive to assess risk of the potential investment in terms of credit risk, interest rate risk and liquidity risk. The credit risk analysis would involve an assessment of the past track record and prospects for the company, the industry it operates in, the future cash flows from operations and the requirement for additional capital expenditure. An interest rate scenario analysis would be performed on an ongoing basis, considering the impact of the developments on the macro-economic front and the demand and

supply of funds. Based on the above analysis, the AMC would manage the investments of the Scheme on a dynamic basis to exploit emerging opportunities in the investment universe and manage risks at all points in time. The AMC will utilise ratings of rating agencies registered with SEBI as an input in the decision making process. Investments in bonds and debentures will usually be in instruments that have been assigned high investment grade ratings by a rating agency registered with SEBI. Pursuant to SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, the AMC may constitute committee(s) to approve proposals for investments in unrated debt instruments. The AMC Board and the Trustee shall approve the detailed parameters for such investments. The details of such investments would be communicated by the AMC to the Trustee in their periodical reports. It would also be clearly mentioned in the reports, how the parameters have been complied with. However, in case any unrated debt security does not fall under the parameters, the prior approval of Board of AMC and Trustee shall be sought. The AMC will attempt to reduce liquidity risk by investing in securities that would result in a staggered maturity profile of the portfolio, investment in structured securities that provide easy liquidity and securities that have reasonable secondary market activity. In the event of a requirement to liquidate all or a substantial part of these investments in a very short duration of time, the AMC may not be able to realize the full value of these securities to an adverse impact on the Net Asset Value of the Scheme. INVESTMENT POLICIES Consistent with the investment objectives of the scheme, the AMC aims to identify securities which offer superior levels of yield at low levels of risk. The investment team of the AMC will carry out an internal credit analysis of all securities included in the investment universe. The Scheme may also use various derivative and hedging products from time to time, as would be available and permitted by SEBI, in an attempt to protect the value of the portfolio and enhance Unit holders interest. The Investment Manager may therefore enter into forward contracts, future contracts or buy or sell options in an effort to maintain risks at acceptable levels. The Scheme may also invest in suitable investment avenues in overseas financial markets for the purpose of diversification, commensurate with the Scheme objectives and subject to necessary stipulations by SEBI / RBI. Towards this, the Mutual Fund may also appoint overseas investment advisors and other service providers, as and when permissible under the regulations. TOP Systematic Investment Plan (SIP) Details Serial Scheme Name No. Minimum Application Entry Load # Amount(Rs.) Rs.500 for HDFC TaxSaver Fund - Dividend / Monthly & NIL Growth Rs.1500 for Quarterly

Exit Load #

NIL

# Applicable for SIPs registered w.e.f from August 1, 2009 TOP

Fund Manager Mr. Vinay Kulkarni (since Nov 21,2006) Mr. Miten Lathia - Dedicated Fund Manager - Foreign Securities TOP Portfolio - Holdings (as on January 31, 2012) Company Industry+ EQUITY & EQUITY RELATED State Bank of India Banks Consumer Non ITC Ltd. Durables Tata Consultancy Services Ltd. Software Infosys Ltd. Software Telecom Bharti Airtel Ltd. Services ICICI Bank Ltd. Banks Industrial Capital Bharat Electronics Ltd. Goods Tata Motors Ltd. DVR Auto Bank of Baroda Banks NTPC Ltd. Power Total of Top Ten Equity & Equity Related Holdings Total Equity & Equity Related Holdings Total Money Market Instrument & Other Credit Exposures (aggregated holdings in a single issuer) Short Term Deposits as margin for Futures & Options Cash margin Other Cash, Cash Equivalents and Net Current Assets Grand Total Average AUM for the quarter ended December 31, 2011 (Rs In Lakhs) Note : $ Sponsor

% to NAV 6.77 5.07 4.88 4.13 3.56 3.08 2.59 2.56 2.44 2.44 37.52 89.14 0.00 0.32 0.15 10.39 100.00 2,88,016.58

Top 5 ELSS schemes to invest in 2011-12

In our market 71 equity linked savings schemes (ELSS) are floating from various asset management companies. Most investors generally search for best performing ELSS schemes between January and March for investment and to save tax because the financial year is coming to end. Investors are in dilemma while searching the best available fund based on their goals and risk taking capability. In this article, your confusion will be reduced since performance of Best ELSS mutual fund schemes in 2011-12is reviewed.
SIP best way to invest in ELSS

As discussed, most investors generally rush to invest in ELSS schemes with lump sum amount between January and March. This is not the right way to invest in mutual fund schemes. To gain maximum benefit its recommended to invest regularly throughout the year by following systematic investment plan (SIP). This will take care of volatility in the index and invests a particular amount regularly into your fund for tax saving. However, there is a 3 year lock-in period for ELSS investments i.e. any investment that you make in ELSS schemes cannot be liquidated before 3 years. So, while opting for SIP in particular ELSS scheme the fund considers separate 3 year lock-in period for each SIP installment. For example, the 3 year lock in for the units bought on 5th January 2012 would end on 5th January 2015, for the units bought on 5th February 2012 would end on 5th February 2015, and so on. Table with top performing ELSS schemes in 2011-12

Religare Tax Plan (G)

Asset allocation: 80% in equities and 20% in debt instruments. In equity ~60% is invested in large cap and ~40% in mid cap.

Investment style: Bottom up approach Top Sectors: Financial services, energy, technology, FMCG and services which constitutes around 65% of total portfolio. Top holdings: ICICI Bank, Infosys, Reliance Industries, HDFC Bank and ITC which makes up ~27% of net assets in the fund. Performance: Aggressive towards investment in mid cap and small cap stocks. The fund has outperformed its peers with fare returns in last 5 years.

Canara Robeco Equity Tax Saver (D)

Asset allocation: 85% in equities and 15% in debt instruments. In equity ~70% is invested in large cap and ~30% in mid cap. Investment style: Mixture of top down approach and bottom up approach. Top Sectors: Financial services, energy, technology, FMCG and construction which constitutes around 65% of total portfolio. Top holdings: HDFC Bank, Infosys, Reliance Industries and Tata Consultancy which makes up ~20% of net assets in the fund. Performance: Aggressive towards investment in mid cap stocks and diversifies its portfolio by investing in various sectors. The fund gave ~21% annualized returns in last 10 years and its outperforming peers / benchmark index in last 5 years.

Fidelity Tax Advantage fund (G)

Asset allocation: 80% in equities and 20% in debt instruments. In equity ~80% is invested in large cap and ~20% in mid cap. Investment style: Bottom up approach. Top Sectors: Financial services, energy, technology, FMCG and healthcare which constitutes around 70% of total portfolio. Top holdings: HDFC Bank, ICICI Bank, Reliance Industries, Infosys and ITC which makes up ~30% of net assets in the fund. Performance: This fund invests is tilted towards investment in large cap stocks which is giving consistent performance among its peers and benchmark index. However, the performance of this fund is affected when there is rally in mid cap stocks.

Franklin India Taxshield Fund (G)

Asset allocation: 80% in equities and 20% in debt instruments. In equity ~70% is invested in large cap and ~30% in mid cap. Investment style: Bottom up approach. Top Sectors: Financial services, energy, technology, telecommunication and automobile which constitutes around 65% of total portfolio.

Top holdings: HDFC Bank, ICICI Bank, Reliance Industries, Infosys, Grasim Industries and Bharti Airtel which makes up ~35% of net assets in the fund. Performance: This fund is idle for conservative investors due to its investment style skewed towards large cap / blue chip stocks. In last 10 years the fund gave ~24% annualized returns to its investors outperforming benchmark index.

HDFC Taxsaver Fund (G)

Asset allocation: 80% in equities and 20% in debt instruments. In equity ~60% is invested in large cap and ~40% in mid cap. Investment style: Top down approach. Top Sectors: Financial services, energy, technology, FMCG and healthcare which constitutes around 70% of total portfolio. Top holdings: State Bank of India, ITC, Tata Consultancy Services, Infosys, ICICI Bank and Bharti Airtel which makes up ~30% of net assets in the fund. Performance: This fund is invested towards mid cap stocks which makes it aggressive in this category. The return in last one year is affected due to more exposure towards banking stocks which were under pressure on account of liquidity tightening by central bank. In last 10 years the fund gave ~28% annualized returns to its investors outperforming benchmark index and peers in the category.

Interpretation of risks while investing in this schemes

Looking at returns shall not be the only criteria for investments. You need to analyze the risks while investing in these schemes. Table with interpretation of risks in ELSS schemes

Concern over future of ELSS after implementation of Direct Tax Code (DTC)

The government is planning to implement DTC from April 2012 or from next financial year. As per last draft of DTC, ELSS will not be considered as tax saving investments. So, assume if this is a final draft and DTC is implemented from April 2012 then this quarter would be last to invest in such schemes. The investors investing in this financial year will get the tax benefits and amount will be locked-in for 3 years. The experts are of the opinion such steps from government is to push investments in new pension schemes (NPS) which could be other alternative to build wealth in the long term and gain tax benefits on investment. However, top AMCs are trying their best to get approval on tax benefits for investments in ELSS schemes under DTC. So, the future of ELSS is uncertain until final draft of DTC is approved.

http://www.onemint.com/2011/01/02/tax-saving-elss-mutual-funds/ http://www.business-standard.com/india/news/elss-only-for-tax-saving/386324/ http://www.finwinonline.com/2010/01/which-tax-saving-fund-elss-fund-to.html