March 27, 2011 by akhilendra
ELSS to stop after DTC
Equity linked Saving schemes has been one of the most favorite tax saving investment instrument for the lot of people in India. Especially, educated working class have been quite fond of it. ELSS come with a three year locking period. This time allow invested capital to grow and they were yielding great returns since last few years.
This table shows some of the best performing ELSS schemes available in India
ELSS Scheme 3 month return 6 months return 3 yr return
Fidelity Tax Advantage (G) -5.1 % -7.1 % 14.3 %
ICICI Pru Tax Plan (G) -7.6 % -8.0 % 14.6 %
Can Robeco Equity Tax Saver (G) -5.8 % -9.8 % 16.9 %
HDFC Tax Saver (G) -7.0 % -9.4 % 14.4 %
HDFC long term tax advantage (G) -8.4 -8.6 % 11.9 %
Investment in ELSS has grown exponentially in last few years. Rs 11,800 crore were invested in ELLS in the month of May, 2007. It grew to Rs 23,700 crore in May 2010. But things are about to change drastically. After the DTC, ELSS won’t get any tax exemptions. So this is a bad news for the investors as well as mutual fund companies.
ELSS were a very attractive investment option for investors. It offered tax benefit and a three year lock in period in comparison of life insurance policies where policy tenure is much longer. ELSS is available in three forms;
1. Growth option
2. Dividend option
3. Dividend reinvestment option
Dividend option allowed investors to get money consistently throughout the lock up period, so they had a options where they got everything money supply, tax benefits and great returns. With so many benefits, it is definitely a huge loss for the investors.
Existing investments will continue to get the tax benefit but once DTC is implemented there won’t be any tax benefits on the new investment. DTC is still a law and is expected to be implemented some time in the next financial year. Investors have still some time left but recheck the existing norms before making any fresh investment in the ELSS.
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