Looking for the Best Fund for Tax Saving Investment? Try HDFC TaxSaver-Growth Plan

Looking for the Best Fund for Tax Saving Investment? Try HDFC TaxSaver-Growth Plan

Feb 22, 2018

Waiting for an entire year till the arrival of March to pull up your socks and make efforts to save taxes is a profoundly imprudent act. A prudent service holder plans his taxes well ahead of time. An important aspect of tax planning is to figure out investment schemes that you want to invest in. Although there is no dearth of options, you can choose to invest in mutual funds, especially ELSS (equity linked savings schemes) for maximum tax benefits. Wondering what the benefits of investing in mutual funds are? Well, here they are! Check out -

A kind of buy and hold discipline gets inculcated in the investor -

Talking about equities and equity oriented investment products, it’s not the timing but the time that is of importance. You can earn high returns from mutual funds if you don’t mind investing for the long term. And because ELSS has a mandatory three year’s lock-in period, the investors fail to withdraw the money for the first three years of investment. This exposes them to long term benefits of mutual funds. There are a lot of investors who try to book profits with every rise in NAV, but this is unhealthy according to experts, and is discouraged when an investment in ELSS is made.

The lock-in period enables the fund manager to focus on his fund better -

It’s not the investor alone; even the fund manager looks at ELSS from a long-term perspective. That means, they plan out things for the fund without worrying about redemption pressure. And this peace of mind persists throughout the lock-in period of three years. With greater focus, the fund manager is able to make the fund more profitable for its investors. Not just the returns increase, the transaction costs also get lower, as a result.

The aspect of tax efficiency -

Yes, ELSS helps you create wealth, but it also helps you save taxes in an efficient way. If you invest in an ELSS, you will be exempted from paying any tax for investment up to INR 150,000 per year. This is a provision under the section 80C of the Income Tax Act. Here is how it works -

Say, you made an investment of INR 100,000 in an ELSS. And let’s assume you get an exemption of 30%, which accounts for INR 30,000. Now, suppose the NAV of the fund rises from INR 10 to INR 14 by the end of the three years of lock in period, what is the growth you can expect? Quite obviously, the corpus grows to 140,000 by the end of the lock-in period.

If you think a return of 40% is disappointing, then you need to think about it again. Your investment of INR 100,000 got you a tax break of INR 30,000. That is, your actual investment comes down to INR 70,000. If this 70,000 can earn you 140,000, you can’t call ELSS inefficient. After all, you have gained 100% return in three years.

Now, it may be inferred from this example that ELSS is definitely the best tax saving option for a service holder like you.

With SIP you can play it smart -

When you invest in ELSS, you have the option of saving with the help of the SIP approach. That means, a portion of your salary gets deducted every month for investment into your ELSS fund. Now, what are the benefits of investing with the SIP approach?

  • Tax planning indeed becomes a planned business. And it’s better than making any eleventh hour arrangements. Besides, it inculcates in you great saving discipline.
  • When you opt for SIP, you get the advantage of rupee-cost averaging. That implies, when the NAV rises, you get great returns, and when the NAV dips, you purchase more units. This approach turns out extremely productive in the long run.

ELSS, definitely, is the order of the day, and is an absolute savior for tax payers. Now, because the market is flooded with ELSS products, you must make a judicious choice for investment. If you are looking for a well performing product, then HDFC TaxSaver-Growth Plan is the option for you. Below, you find all the details linked to this investment product.

HDFC TaxSaver-Growth Plan -

The main aim of the scheme is to achieve capital appreciation. About 80% of the corpus remains parked in equities, bonds of companies, preference shares, FCDs etc. If you want to invest in this scheme, you can start as low as INR 500.

To understand how the scheme has performed over the years, let’s look at the scheme performance table below. In the table, we see that the scheme, in its first year of launch, offered a return of 25.57% against 21.77 offered by other comparable funds in the market. In the third year of the scheme’s advent, the return offered by it was pegged at 11.13% as opposed to 14.16% offered by equivalent funds in the same year. In the fifth year, the difference between the return offered by HDFC (18.61%) and the return other comparable funds offered (19.25%) was little. In the tenth year of launch, the scheme registered a return of 10.43%, whereas the market average that year stood at 9.28%.

Although the years taken into account here, show a mixed performance of the scheme, it has succeeded to outperform all other equity linked savings schemes in the market, when it comes to since-launch performance of the scheme. The since-launch return offered by the scheme was 20.24% whereas it was 17.12% for other comparable funds. Apparently, the scheme performed significantly better than other schemes in the market in totality.

Source: Swaraj Wealth Research

Now, let us have a look at the overall scheme performance through the yearly performance table here. The yearly performance has been assessed over the years 2012- 2016. During this span, the scheme indeed showed satisfactory growth. But if you look at the growth the scheme offered in the year 2016, you will see that it has outperformed other ELSS (Equity Linked Savings Schemes) in an impressive manner. While HDFC registered a growth of 7.57%, other ELSS’ growth stood at 4.52%.

Source: Swaraj Wealth Research

The table below reiterates what the scheme performance table above reflected. What is different here is the inclusion of the performance of the scheme in its second year of launch, which is 25.57%.

Source: Swaraj Wealth Research

So, the bottom line is, if you want the most tax efficient scheme, then trusting HDFC TaxSaver-Growth Plan would be the best bet.

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