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ELSS or equity linked savings schemes, popularly termed as tax saver mutual funds, refer to a unique class of equity mutual funds that provide tax exemption on investments of up to Rs. 1.5 lakhs annually under Section 80C of the IT Act, 1961. In recent years, investments in ELSS have increased significantly and this increased popularity is driven in no small part by the falling interest rates that have made fixed rate schemes such as PPF, EPF and bank fixed deposits less lucrative than earlier. However, just making investments is not enough; there are key considerations to keep in mind such as style of investment – lump sum or SIP and the expected returns from an investment made in the fund of your choice.
Additionally, in case you are planning to invest in an ELSS fund, it would also be helpful if you could analyse the historical performance of the fund. Fortunately, investors whether current or prospective can look forward to a range of tools that can help them make the best decisions with respect to choosing their investment in an ELSS scheme. Commonly termed as ELSS Calculator, this set of tools can help determine how effective or ineffective the expected investment will be. Three of the most commonly used tools are – the ELSS Lump sum calculator, the ELSS SIP Calculator and the ELSS SIP Past Performance Calculator. In the following sections, we will discuss these ELSS calculator options in greater detail.
ELSS lump sum calculator is often available on financial websites as a lump sum calculator and the functionality of these calculators remains the same. The premise of this calculator is simple – you make a lump sum investment in the ELSS of your choice, select the duration while you stay invested and input your expected annual returns from the fund. Once these data have been provided, the calculator will provide you with the expected value of your investment based on the data input by you. There are a few considerations though – the lock in period for tax saver mutual fund schemes is a minimum of 3 years or 36 months, the final value you get will be generated on the basis of your inputs only and the calculator does not take into account your tax benefits for investing in the tax saver mutual fund, which is effectively an EEE scheme. Let’s take can example.
Lump sum Investment Amount = Rs. 10,000;
Investment tenure = 40 months;
Expected Rate of return (annualized) = 15%.
In such a case the final value of your investment would be = Rs. 16337. In the above example, if you change the expected rate of return to 12%, the maturity value of your investment would be = Rs. 14,831. This is perhaps the simplest ELSS calculator that is in use today and the user needs to bear in mind that these projections are based on the data provided with no regard as to the real market scenario wherein the returns for the ELSS fund may be higher or lower at different periods.
One of the most convenient and effective investment styles with respect to tax saver mutual funds is the SIP or systematic investment plan. The SIP is a disciplined approach to investing and ideal for individual investors who want to ensure that they have a large investment corpus in the long term through small investments made at periodic intervals (usually monthly) in an ELSS fund or any other mutual fund of their choice. The key benefits of SIP investments in tax saver mutual fund or any other type of scheme investment includes rupee cost averaging and regular systematic investments as well as the professional management of the funds. That said, it is also of paramount importance to figure out or rather estimate the worth your investment would be at the end of your SIP tenure. The maturity value of your SIP in an ELSS fund can be obtained by using the ELSS SIP Calculator, however, the principle of this calculator is the same as that of the standard SIP calculator that can be used to calculate the returns offered by a SIP in any equity, debt or hybrid fund of your choice. The input fields in case of an ELSS SIP calculator include – the individual SIP investment amount, the duration of the SIP and the expected rate of return on the investment. Based on this information provided by the user, the tool can provide estimated returns of your SIP investment. Let’s take an example,
Individual SIP Investment Amount = Rs. 2000/month
SIP Tenure = 12 months
Expected Rate of Return = 15%
Cumulative Investment value at end of tenure = Rs. 24,000 (Rs. 2000 x 12 months)
Maturity Value of SIP at end of tenure i.e. 12 months = Rs. 26,016.
As with the previous ELSS lump sum calculator, this ELSS calculator for SIP is also dependant on the input provided by the user. Therefore this calculator just provides an estimate of the returns based on data provided by the user which may or may not correspond with actual market conditions of the past or the present. The utility of this SIP calculator is thus as a tool for making estimates only and it also cannot be used to calculate the tax benefits of your SIP investments.
This is a specialized SIP calculator and it provides an insight of how your chosen fund’s SIP has performed in the past. This SIP calculator is designed to use the actual historical performance of the fund so that you can compute how much your SIP investment would have been worth at given period of time. The key input fields available in this calculator include the following:
The above information does provide flexibility to the user of the calculator for setting the SIP amount and the start/end date of the SIP. However, the rest of the data such as the rate of return etc. are automatically calculated based on historic performance data of the scheme. Let’s take an example.
Let’s consider the case of the Axis Long Term Equity Fund (Regular Growth), the ELSS fund from Axis Mutual Fund AMC.
Let each individual SIP investment amount be Rs. 2000 with the first SIP being made in January 2014 and the last SIP being made in December 2016.
Let’s calculate the value of such an ELSS SIP investment in January 2017.
In case of the above SIP, the total cumulative amount invested = Rs. 72,000 (Rs. 2000 x 36 months)
Value of the investment as per NAV on 1st January 2017 = Rs. 81365.
Absolute Returns generated by the fund = 13.01%.
CAGR of the fund for the period in question = 8.08%.
The above example illustrates how you can use the historical fund data of the fund to determine potential returns of your SIP over a pre-determined period of time. The data can be used to gauge the performance of a mutual fund such that both market bull runs and bear runs are factored in. Knowing the performance over the long term can help the investor make an informed decision regarding where the fund in question might be headed in the future. Thus, even though past performance is no guarantee of how an investment will feature in future, it does provide clues regarding how successful the fund has historically been with respect to negotiating different market conditions.
One of the key ways an individual investor can choose leading tax saver mutual funds from the numerous ELSS funds available in the market is by using the ELSS Calculator. This is especially true for the ELSS Calculator for SIP Past Performance, which can be used to calculate the effectiveness of the fund during varying market conditions such as bull runs and bear runs. To understand why this is important, consider this – there are a few ELSS funds that do extremely well during market booms. These tax saver mutual funds often include those that are heavily invested in small-cap and mid-cap companies that have high growth potential during rising markets. However, these same funds often lose all of these gains and even incur losses at the time of market busts such as a sustained bear run. Thus it becomes important to check the historical performance of the fund during both the boom and bust periods of the market by using the ELSS Calculator.
The following table shows the historic performance information of some leading ELSS funds currently available in India. In the following table, the lump sum investment is taken as Rs. 10,000 made on the 1st of January 2014 and the maturity value is based on the NAV of the ELSS on 8th August 2017. In case of SIP, the start date is the 1st of January 2014 and the end date is the 31st of December 2017. The individual SIP installment for the purpose of this illustration is Rs. 500/month i.e. cumulative investment of Rs. 18,000 over the SIP tenure. The SIP maturity value is based on the NAV of the fund as on 8th August 2017.
|ELSS Name (Regular Growth Plan)||1 year Returns||3 Year Returns||5 Year Returns||Lump Sum Maturity Value||SIP Maturity Value|
|Franklin India Taxshield||12.69%||15.52%||19.19%||Rs. 20228||Rs. 25141|
|Birla Sun Life Tax Relief ‘96||17.40%||18.53%||21.66%||Rs. 21446||Rs. 26774|
|Reliance Tax Saver (ELSS) Fund||22.52%||15.70%||22.29%||Rs. 23216||Rs. 27014|
|DSP BlackRock Tax Saver Fund||18.56%||17.67%||21.73%||Rs. 21673||Rs. 27344|
|Axis Long Term Equity Fund||13.94%||16.06%||23.04%||Rs. 21755||Rs. 25747|
*The table is for illustrative purposes only and some of the figures are based on certain assumptions, thus it may or may not correspond with a real-life investment situation.