Tax Saving ELSS Mutual Funds

by Manshu on January 2, 2011

in Mutual Funds, Tax

This is yet another post from the Suggest a Topic page, and in this post I’m going to take a look at the ELSS (Equity Linked Saving Schemes) mutual funds or tax saving mutual funds in a  little bit of detail.

Let me start off by telling you that there are plans to phase out the tax breaks on ELSS mutual funds with the introduction of the Direct Tax Code (DTC), so this avenue is going to be closed in the coming years.

However, you can still invest in it this year and get tax breaks. These tax saving mutual funds are covered under Section 80C, which means that you can invest a maximum of Rs. 1 lakh in them, and reduce that amount from your taxable income.

There is a lock-in period of 3 years on such funds, which means that you can’t sell these funds within 3 years of your purchase date.

I saw an interesting question on Value Research some time ago where someone had written in to ask what happens when they select the dividend re-investment option in the case of a ELSS fund.

The dividend that is invested back in the scheme is considered fresh investment, so what happens is that this money is further locked in for three years, and this can create an infinite loop. I’m not sure what will happen going forward with DTC coming in, but it’s best to play it safe, and go for the Dividend or Growth option of the ELSS you’re buying.

Before we get down to the options available under ELSS funds, let’s recap the points discussed so far:

  1. The tax benefit of ELSS will be phased out with the introduction of DTC.
  2. The tax benefit is still available this year.
  3. There is a lock in of 3 years, so you can’t sell these tax saving mutual funds within 3 years of purchase.
  4. If you use the dividend re-investment option then the amount re-invested will be treated as fresh investment, and will be locked in for 3 years from the time of re-investment.

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 doesn’t 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 Inception Date 5 year returns Expense Ratio
Birla Sun Life Tax Relief – 96 March 1996 16.57% 1.96
Canara Robeco Can Equity Tax Saver March 1993 22.31% 2.38
HDFC Tax Saver March 1996 17.80% 1.86
ICICI Prudential Tax Plan August 1999 15.48% 1.98
SBI Magnum Tax Gain Scheme – 93 March 1993 16.32% 1.78
Principal Personal Tax Saver March 1996 16.42% 2.19
Franklin India Tax Shield April 1999 17.34% 2.10
Sundaram Tax Saver Nov 1999 17.73% 1.96
Sahara Tax Gain March 1997 22.31% 2.50
Reliance Tax Saver August 2005 15.14% 1.88

All data from Value Research

This list is not sorted in any particular order, and that’s deliberate because as soon as you sort something your brain tends to think of it as best to worst from top to bottom, but that’s 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 that’s 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.  

I will also recommend going to Value Research and doing some more research, and playing with their tools because they do have a lot of good tools in there.

{ 149 comments… read them below or add one }

Sivaramakrishnan @ Loney January 2, 2011 at 7:49 AM

Hi Manshu

I am becoming a great fan of your blog. I liked the way you scrambled the funds not to put it into any particular order. Good Going man!

I would like to add a few points :

1. ELSS would be available for the F.Y.2011-12 also since DTC comes into effect only from F.Y.12-13
2. Tax Planning should start in the month of April and should continue through the year and should not be concentrated during the last quarter alone.
3. Choose your fund on the basis of the process followed and not on the basis of past performance or on the basis of the fund house or on the basis of a star fund manager (Most well managed funds are those that are little heard of. The Best managed Equity Mutual Fund Scheme is actually the smallest equity fund in India). The Best best would be funds that follow the bottom-up principle of stock picking and those who believe in the value-investing philosophy (Buy lower and sell higher) of Warren Buffet (rather than the other way around).
4. Don’t go for funds that have a very high churn ratio because part of the returns is spent on brokerage and trading charges
5. Invest Systematically. If possible go in for a Daily SIP or a Weekly SIP. I personally donot like lumpsum investments.

Happy Investing!


Manshu January 3, 2011 at 3:42 AM

Thanks Loney – where can one see the churn ratio? Is it available on sites like Value Research or just with the individual fund website?


Sivaramakrishnan @ Loney January 3, 2011 at 6:12 AM

Hi Manshu

You can get the turnover/churn ratio from the monthly factsheet


Manshu January 3, 2011 at 8:15 AM

Alrighty – thanks!


Aditya Modi January 2, 2011 at 10:20 PM

Dear Manshu,

Appreciate your work . need some help please. for the infra bonds, I was tweaking around with ICICI direct ( i have indiainfoline account also). By a silly mistake i blocked 2 units of IDFC worth 10,000 Rs. I wanted to block 20,000. Now the ICICI direct system is not allowing me to invest additional amount. I need to submit investment proofs in the company in a day. Can you please help me here?



Manshu January 3, 2011 at 3:45 AM

It seems to me that you’ve bought bonds worth just Rs. 10,000 and now since the subscription is closed you aren’t able to buy more. Quite frankly, I don’t know what you could do in this situation apart from waiting for another issue that comes up. Sorry, couldn’t be more help.


Manshu January 3, 2011 at 11:10 AM

Aditya – just thought I’d let you know that IFCI has extended its deadline to 12th Jan, just in case it interests you.


srini January 3, 2011 at 5:46 AM

Hi Manshu,
Goodday to you !
I like your advice on my case below…
i have a LIC Money Plus ULIP policy. i have invested 80K per year since 2007 for tax benefit under 80C.
3 yr lock in period is over. i have gained only 5% returns per year, its current price is Rs-12.89. This prices is fluctuating proportinately based on the BSE index. i have sold less than half of my units for an emergency need.
In this case , can i continue investing in this product and book profits by selling units when the markets are doing well.
or would you suggest me to surrender this product and start a fresh investment… ? pls let me know.

here are my other queries.
1. in case if i continue investing in this Money Plus ULIP product will i get the tax benefit under 80C till 2027 till this policty matures.. ? because there were some speculation that i will lose its tax saving feature once DTC ( direct tax code ) come in to effect. pls advise.

2. If you suggest surrender this product what are the other products you would suggest me , which can help me as a tax saver in the first place and then give me a good return.



Manshu January 3, 2011 at 8:16 AM

Srini – I’m sorry but I don’t have the bandwidth or competence to provide an opinion on your situation.


Smart Singh January 5, 2011 at 1:50 AM

Your question is a tough one for any financial planning. I’ll try my best to simplify the answer.
The ULIP you bought was a front-loaded product. Which means they deducted a huge chunk of your first year premiums in different charges. These type of investments only give you a respectable return if you continue for more than 12 years. Because they won’t deduct that much from your premiums after 3 years. Now if you had invested something like 15-20K per year, you should have continued.
But 80K per year is a huge commitment and continuing it would be like ‘throwing good money after bad’. I’d recommend you surrender this product. And here are the reasons:
1. Suppose you had chosen 50% equity option in this ULIP. Now if you invest 40K in PF or PPF and 40K in equity mutual funds, you’ll get much higher returns in this combo.
2. Their is no commitment to invest every year. Its a big relief.
3. Yes, ULIP dividends will be taxed after 2012, thanks to DTC.
4. Take advantage of ELSS mutual funds because they’ll be gone after DTC comes in.
Let me know if you need more clarification.


srini January 5, 2011 at 2:51 AM

Thanks for your advise.. Singh !

by the way ,

1. Mine is a growth fund with a pure life cover bundled, am not sure about the equity % in it.
2. I heard the ULIPs which are launched before DTC lauch would continue to enjoy the tax saving feature even when you are closing it. The dividents will be taxed only for the products launched after DTC comes in to force.
3. The PPF is not attractive because of the 15yr lock-in.
4. pls suggest me couple of ELSS products to invest.



Smart Singh January 5, 2011 at 4:01 AM

1. For a growth fund, I’m guessing they would have around 50%-60% equity. If your horizon is more than 15 years, you should have around 70% equity and enjoy the fruits of India Growth Story.
2. My bad. Yes, the latest draft exempts the existing ULIPs.
3. PPF, in fact, has the shortest lock-in of all products which will be fully tax-exempt (EEE) after 2012, assuming you are less than 40 year old.
4. From the above list, I’ll probably choose the 3 funds with lowest expense ratio. They turn out to be Reliance, SBI and HDFC. There are reputed companies. Past returns should be used for filtering and not selecting.


Sivaramakrishnan @ Loney January 5, 2011 at 5:52 AM

Hi Smart Singh

I would like to differ from you wrt reputed companies. I donot believe in the reputation of companies. Fund management is upto the team to deliver the goods to the investors. An ethical fund management team which is disciplined in the process of investing will do wonders rather than large corporate brand names.


Smart Singh January 6, 2011 at 12:48 AM

Hi Siva,
Great Point! Thanks.
Agree that it’s not necessary that reputed companies would not give better returns. But in absence of any other information, in my opinion, it’s a good enough proxy for ethics, people and process.

Also, if not for selection, it’s a good parameter for filtering. In my recommendation above, they just happened to be established fund houses. It was not the basis of recommendation.


Sivaramakrishnan @ Loney January 5, 2011 at 4:20 AM


I wouldnot answer your question with regards to ULIP because I am a die-hard hater of these parasitic schemes.

With regard to the other question
You should decide the scheme yourself based on your risk tolerance

When choosing ELSS products, you should first know your risk tolerance.
1. If you donot have risk tolerance, ELSS is not for you
2. If you have a small amount of risk tolerance, you should go in for Large Cap oriented ELSS funds
3. If you are risk averse and you completely understand the nuances of investing in ELSS schemes and you want higher returns, go in for mid-cap oriented ELSS fund

If you ask me, I would go in for Quantum Tax Saving Fund because, I like their principle of investing and their work ethic. This is definitely not to be considered as a recommendation.


Smart Singh January 5, 2011 at 1:54 AM

You should also have listed younger funds with good 3 year returns. For example, Fidelity Tax Advantage Fund is doing consistently well for last couple of years. And it’s a world-renowned brand. Maybe it deserves a place in a top 10 list of ELSS.


Manshu January 5, 2011 at 4:32 AM

That’s not the way I think, and personally I value a long track record much more than world – renowned brand, or whatever, so that’s the way I’d go about narrowing my options.


Smart Singh January 6, 2011 at 1:06 AM

Investing is more of an art than science, and everyone has different beliefs. I just wanted to indicate that a strict filtering is not always the best option. The fund in question is 4 years and 10 months old and does not qualify in your list in spite of having a good track record.
And as I said above, good brand is often a decent proxy of people, process and ethics, just like you believe long track record is.
I really like your list otherwise. And the best way to go forward would be using a dice 🙂


Sivaramakrishnan @ Loney January 5, 2011 at 6:09 AM

I would like to suggest with a disclaimer the following funds. Again, like Manshu did, I would not put them in any particular order. I would try to classify them according to their risk-reward charateristic. I would also deal with this aspect qualitatively rather than use quantitative tools or ratios. The views expressed are my own and you may use your discretion to either accept or reject my views.

*HDFC Tax Saver……………………………..Medium…………High
Canara Robeco Tax Saver…………………High……………..High
*Fidelity………………………………………….Medium…………Medium (Conservative)
*Franklin India Tax Shield…………………Medium………..Medium (Conservative)
Birla Sunlife Tax Relief ’93……………….Medium………..High
*Quantum Tax Saving Fund……………….Low……………..High (Value Investor)
ICICI Pru Tax Plan…………………………High…………….High (Aggressive)
Sundaram Tax Saver………………………V.High…………High (Aggressive)
SBI Magnum Tax Gain…………………….Medium……….Medium

* My personal favouites

Typically ONE ELSS would siffice. In any case, never go for more than TWO funds.


Manshu January 5, 2011 at 9:52 PM

Hey Loney, What is the thought process behind this? I mean how did you narrow them down to these, and how did you classify the risk – reward?


Sivaramakrishnan @ Loney January 6, 2011 at 4:00 AM

As I have mentioned, all the above observations are qualitative based on my experience with them during the last three years. I started my mutual fund investments with a very huge number of funds numbering TEN. And all the above funds featured in my portfolio. I had the opportunity of analyzing them during the downturn in 2008 because I was holding all these funds during the entire downturn and the recovery during 2009. It is based on these experiences that I classified them.


Sivaramakrishnan @ Loney January 6, 2011 at 4:04 AM

Hi Smart Singh

Since I was holding ten mutual funds at the same time, I found that i was wrong in doing the same. So, I have started reducing the number of funds in my portfolio and have already reduced them my half. Now, I am investing in only two funds and as soon as the lock-in is over, I would have only two mutual fund holdings. One Tax Saving and the other for regular investment.

The only two funds I will have in my portfolio would be
1. Quantum Long Term Equity Fund (Daily SIP)
2. HDFC Tax Saver (Monthly SIP)


Manshu January 6, 2011 at 7:44 AM

Okay, I didn’t realize you had already mentioned that. Thanks for clearing that up.


Smart Singh January 6, 2011 at 1:14 AM

I have the same question. Though I have a hunch that yours is a returns-based analysis. Because a holdings-based analysis would always have high-high or low-low relation for risk and rewards. Or else you need to have a very strong view on the sectors or holdings in the portfolio.
But then returns-based analysis is backward looking.

And I’m sorry but I totally disagree with your statement that ‘never go for more than TWO funds’. It totally goes against the spirit of risk reduction and diversification. I always advice newbies to invest in 5-10 mutual funds.

PS: The risk of a value investor is usually very high and it takes character, conviction and deep pockets to be one.


Sivaramakrishnan @ Loney January 6, 2011 at 3:52 AM

With regard to diversification, I believe that a mutual fund itself is a diversified vehicle diversified across various sectors and and market caps. Typically, a mutual fund holds 50 stocks. Holding a very large number of mutual funds will make it so diverse that the portfolio tend to behave like an index fund. It would be better to go for an index fund whose expense ratio is very much less than actively managed funds.


Sivaramakrishnan @ Loney January 6, 2011 at 3:55 AM

My last statement means that too much diversification in mutual funds would mean that your portfolio would never beat the market by much and therefore its return would more or less reflect the broader market. If you want to track the broader market, index funds are the best alternative because of low expense ratio.

With regard to first time investors, probably, they must start with a balanced fund -> Index Fund -> Activele managed large cap or large-mid cap fund


Manshu January 6, 2011 at 7:42 AM

Could you please elaborate on what you mean by holdings based analysis, and the inference that it will be have a high – high or low – low relation for risk and reward?


Sivaramakrishnan @ Loney January 6, 2011 at 8:21 AM


I would like to clarify that even-though theoretically risk-reward should be high-high or low-low, we find that funds deviate from theory by a long way. If theory holds good, all funds would have the same Sharpe Ratio. But, we find that the sharpe ratio, which tells you how much your fund reward you for each quantum of risk taken, varies from fund to fund. This may be due to Faulty Assessment of Risk by a Fund Manager. There are funds that take undue risk to reward you. These funds usually take more risk than they reward you with. Such funds will have the least Sharpe Ratio. Funds that take weighted risks and reward investors handsomely have very high sharpe ratio. Any fund manager who sees fundamentals rather than momentum to pick stocks will do much better because the risk he has taken would be justified over the long term. Whereas momentum chasers (they call themselves high alpha and high beta fund managers) will find that when the momentum suddenly loses steam they are nowhere.

I also beg to disagree with you on the fact that value investing is risky.
Because, A value investor
1. Takes the whole investment universe.
2. He short-lists only the companies that are sustainable in the foreseeable future
3. He then eliminates all richly valued companies and picks companies whose price can be justified on the basis of fundamentals.
4. He chooses an appropriate entry price and an appropriate exit price.
5. He enters the stock only below the entry price(attractive valuation) and exits as soon as the exit price(rich valuation) is reached.
6. He is never afraid of holding cash if the valuations are not attractive.

Since the price you pay is always justified, this is the method of investing where the risk is the lowest. Since you enter the stocks at appropriate price points and exit at specified price points. Such portfolio more-or-less resemble a PE-Fund. The only important thing is that you should stay for the long term usually 5 years or more. Though this time period is valid for all equity investments, it is more so with value investing.


Vishal Rochlani February 16, 2011 at 10:26 PM

Dear Sivaramakrishnan,

One fund which is missing in the list is HDFC Long Term Advantage Fund which I have been investing since 2006. It is consistently doing good also at present. It is better to go for 2-3 funds rather than 5-6 funds. SIP is the best way of nav averaging, rather than lumpsum investment.



Yuvaraj January 7, 2011 at 2:48 AM

Thanks. Its valuable blog.


Ankit Jain January 11, 2011 at 10:45 AM

Hi Manshu,

I have invested in Principal Personal Tax Saver Fund & Can Robeco Eqty TaxSaver (G) fund, Both are ELSS funds now i wanted to know is there is any way that i can Redeem these fund and if yes what will be the consequences or the penalties…



Sivaramakrishnan @ Loney January 11, 2011 at 6:48 PM

Hi Ankit
You will not be able to redeem in any of the ELSS schemes till the lock-in is over. You will have to wait till the lock-in is over to be able to redeem.


srini January 12, 2011 at 6:27 AM

Hi All,
Not sure this is a right medium to post this question. But i hope i will get a answer for my query 🙂
1. If am buying and selling shares using my demat account and pan card , whatever money am earning will it be taxed end of year as my annual income. pls clarify.
2. My wife got her own demat account and pan card number but she plan to use my bank account for buying and selling shares. will any profit she make added to my income end of year . pls clarify.



Sivaramakrishnan @ Loney January 12, 2011 at 8:09 PM

Hi Srini

According to the Prevention of Money Laundering Act, you are not entitled to make third party payments into your demat account.

Any short-term capital gains you make is liable to be taxed at 15%

Any Long-term capital gain you make is exempt from being taxed.


srini January 13, 2011 at 1:12 AM

Thanks .. Siva !
By the way,
1. if am not wrong. You mean, that i should n’t use others money to trade shares using my demat account. if this is the case, then how come the share brokers like sharekhan, angel broking lending money to their clients to trade shares.. ?
2. on what basis one is classified as short term capital gain and long term capital gain. can u give some examples pls ?
3. My wife got her own demat account and pan card number but she plan to use my bank account for buying and selling shares. will any profit she make added to my income end of year . pls clarify.



Sivaramakrishnan @ Loney January 13, 2011 at 3:54 AM

Hi Srini

1. Credit facility offered to you is considered as your own money.
2. Gain on sale of share held for more than one year is considered as long term capital gain. Gain on sale of share held for less than one year is considered as short term capital gain.
3. Money transferred from your account to your wife’s trading account will be considered as third party payment and the amount will be reversed back to your account. Gain from sale of your wife’s shares is not taxable to you


srini January 13, 2011 at 4:54 AM

Thanks for those valuable inputs .. Shiva !


Manshu January 13, 2011 at 7:22 AM

Many thanks Loney!


srini January 13, 2011 at 7:38 PM

Hi Shiva,
i have few more clarification,
1. This short term capital gain tax of 15% is in addition to the income tax for that respective financial (when am selling the share ) year is it .. ? pls confirm
2. Do i need to pay the income tax for the long term capital gains .. ? pls confirm.



Loney January 13, 2011 at 7:45 PM


You will have to pay the short-term capital gain along with your incometax. You may give a declaration to your employer quoting your additional tax liability and inform them to deduct tax for this also.

You neednot pay any tax for long term capital gains because it is totally exempt.


srini January 13, 2011 at 8:24 PM

Thanks.. Shiva !

So it is based on this “long term capital gains” concept that we are getting tax exemption for ELSS and ULIP schemes.



Loney January 13, 2011 at 8:28 PM

Yes. You are getting tax exemption to ELSS based on this concept of Long Term Capital Gain.

But, Returns from ULIP is non-taxable because, it is considered as a pay-out from an insurance company which is non-taxable. (Both maturity proceeds and claim benefits in mutual funds are non-taxable.


Loney January 13, 2011 at 8:30 PM

I am sorry. The last statement should read …
Both maturity proceeds and claim benefits from insurance companies are non-taxable.


srini January 13, 2011 at 11:02 PM

Thanks . .. Shiva !


srini January 18, 2011 at 12:20 AM

Hi shiva, can you throw some light on the new “Sundaram Tax Saver ” product with Doosra advantage that they are projecting in their ads .



Loney January 18, 2011 at 12:38 AM

They only mean frequent dividend payouts. Dividend in a mutual fund is nothing but automatic partial redemption.

Yes, Sundaram is one fund house that pays dividend frequently.

*After dividend payout, the NAV of the fund will fall to the extent of payout


SSG October 24, 2011 at 11:07 PM

I didnt get any divident since yr 2008 in this fund


srini January 18, 2011 at 4:57 AM

Thanks .. Loney !

By the way , i have few doubts which require your clarification…
1. is it beneficial to buy mutual funds thru brokerage firms like sharekhan and angel brokerage.. ? i heard they take commission which can be avoided if we buy mutual funds directly to the product sellers ?



Loney January 18, 2011 at 6:58 AM

Brokerage firms will take a separate payment towards investment advice as brokerage. If the investment decision is yours, then why pay brokerage to such brokerage houses. You need to pay fee only towards any investment advice rendered by a financial planner. So, you may go directly to CAMS/KARVY/FTAMIL/Fund house office and make your investment as DIRECT.


srini January 20, 2011 at 3:17 AM

Thanks.. Loney !


Khurram January 26, 2011 at 11:43 AM

Hi Srini
I am a 25 yr old media executive. And I have just started investing. Now the initial investment that i have completed is of Rs. 50,000 in HDFC SL Crest scheme. For the purpose of saving tax, I need to invest another Rs. 40,000. Please suggest what should I go for that would maximize my returns-long/short term. I am open to taking risks provided the expected return is worth it.



vrochlani February 15, 2011 at 10:14 AM

Dear Khurram,

You can go for 2-3 ELSS since you want to invest before this financial year. It is better to go for dividend payout as from Jan-March every year the MF pay back the dividend. One fund which I would recommend is HDFC Tax Saver Dividend which is a consistent performer since a long time. The 2nd one you can go for Canara Robeco Equity Tax Saver as has given good returns since last 5 years. The 3rd you can chose is HDFC Long Term Advantage Dividend, which has recently given Div.of Rs. 4/-. Now since the NAV is less you can get more Units. The reason you choose 2-3 funds, so your risk is distributed.



Loney February 15, 2011 at 7:25 PM

Dear Vishal,
I would like to disagree with you on the point that NAV being less or No of units being more is favourable. In mutual funds, as far as i know, NAVs, No of units, dividend payout is is immaterial and never needs to be considered.


Vishal Rochlani February 16, 2011 at 10:33 PM

Dear Loney,

I would like to disagee on your point regd. NAV, Dividend Payout and No. of units. NAV does makes a difference. If you want to sell the units after 4-5 years or whenever you want and the nav is decreased, so there will be loss in that fund. You have to earn some Profit after certain period while selling the Fund. We have to look at the past trend also for deciding to invest in a Fund. All the parameters have to be taken care of while investing in a fund and also the investors main objective of investing.


Loney February 17, 2011 at 5:44 AM

Hi Vishal,
I think you got my point wrong. I said that NAV, dividend payout doesn’t make any difference because :
1. Assume that you have two funds, one having an NAV of Rs.10/- and another having NAV of Rs.250/-. If you invest Rs.1000/- in both the schemes. You will be allotted 100 units in the first fund and 4 units in the second. Assume that both the schemes have identical portfolio and identical expense ratio. If there is a 10% return from the market, the NAVs of the schemes would be Rs.11/- and 275/- respectively. You will find that the market value is Rs.1100/- in both the cases. So, NAV is immaterial. You choose the right fund and invest whatever be its current NAV.
2. With respect to dividend payouts, they are nothing but compulsory automatic redemptions. Say, you have 100 units of a fund having an NAV of Rs.25/- and the fund declares a dividend of Rs.5/-. Then, after the dividend payout of Rs.5/-, NAV would become Rs.20/-. Hence, dividend payout also doesnot matter in considering an investment.


Manshu February 18, 2011 at 9:40 AM

You’re right as always Loney.

Vishal you have anything to say to this?


Loney January 26, 2011 at 6:40 PM

Hi Khurram
You have invested Rs.50,000 in HDFC SL Crest. Answering a few questions would help you to understand the product.
1. Do you know where your money would be invested predominantly? (Equity / Debt)
2.If it is a pure equity product, do you believe that any company can give an NAV guarantee? (Yes / No)
3.What sort of returns do you expect?(8%/10%/12%/15% p.a.)
4.Did you go through the benefit illustration for charges?(Yes/No)
5.Are you adequately insured? (Yes/No)
6.Is the investment consistent with your risk/reward preference?(Yes/No)
7.Do you know about term insurance policies?(Yes/No)
Onto question two…
Since you have mentioned that you can tolerate high risk, you should go in for ELSS. You can use the post and comments to shortlist a fund and invest in a staggered way over a period of time. For this F.Y. though, for want of time, you may invest in a liquid scheme and transfer Rs.1000/- per day through daily STP.


Manshu January 26, 2011 at 7:26 PM

You are on the money as usual Loney – thanks!


Loney January 27, 2011 at 5:33 AM

Thanks Manshu
Of late I find most insurance companies taking investors for a ride in the name of “Highest NAV guarantee plan”. Insurance Agents promise returns of something like 20%p.a. on these products. To provide the NAV guarantee, these schemes should invest predominently in debt meaning that you can expect returns in the range of 8-10% (not guaranteed!) alone excluding charges. If you include the charges, the returns are even less. And add to that, it doesn’t give any one sufficient insurance cover also. I would request you to do a post on these schemes so as to create an awareness among your audience.


Manshu January 27, 2011 at 8:19 AM

I don’t write about insurance because I myself am not interested in it. You buy one term plan and be done with it. What more is there to it, but I keep getting many emails about it, and I think it’s time I covered them in greater detail.

Especially these crazy guaranteed products, let me write something about them in the coming days. Thanks Loney – pleasure, as always.


Loney January 27, 2011 at 8:45 AM

I agree with you. I have only term plans. But, when i suggest term plans to my friends and relatives, they think i am not in my element to put some money for so many years to get nothing back at the end. I have seen people whose total insurance cover is Rs.1 lakh. I would wonder how grossly people have underestimated the cost of their lives.

I would believe that the main culprit in all this is LIC of India, which all these years have built this image that insurance is for saving tax and make good returns off the money being invested. The lack of understanding in people that the insurance cover is a hedging mechanism against the vagaries of life is what needs to be taken to people.


Manshu January 28, 2011 at 5:40 AM

Another post for insurance cover 🙂


Loney January 27, 2011 at 6:31 AM
Manshu January 27, 2011 at 8:17 AM

Yes, a very good read, in fact it gives me an idea to do a post on all the good work Mr. Bhave has done, and in a tiny way recognize his great work.


venkat February 16, 2011 at 3:53 AM

For Tax Saving Mutual Fund Investments advice and processing, please call 9241545354 (for bangalore only)


BHARAT TODANKAR February 21, 2011 at 8:05 AM

The amount invested in ELSS MUTUAL FUNDS is locked for three years but I want to know whether the Tax benefit on this investment is given for the first year or for all the three years for which the investment is locked ? Kindly enlighten me.


Loney February 21, 2011 at 8:28 AM

Dear Bharat
Tax benefit is given for the year in which you have made the investment.


Vikas Sawant March 7, 2011 at 4:39 AM

Good evening Every buddy,

I dont know what is ELSS & SIP ?What is mutual fund?

I want to invest 30000pm for 15-20 years?

Please email me how could i get maximum benefits.

please ex-plane



Manshu March 7, 2011 at 6:47 PM

Vikas – these are quite detailed topics that can’t be explained in a matter of an email or an article. You will have to do a little bit of research on these topics on this website and others as well.

There is no such thing as “maximum benefit” and no magic bullet. Everything has risk and rewards which you will have to understand, and act accordingly.


NS Minhas March 14, 2011 at 2:21 AM

Please intimate whether amount received for encashment of earned leave on retirement from govt service is taxable during 2010-11.


Pawan March 14, 2011 at 10:29 PM

Dear all,
I understand that its been quite late now, but can anyone advise what are the tax saving investment options available under ELSS for this year, with high or medium returns of course? and what is the lock in period for these ELSS?

Also would it be worth while to divide Rs. 50,000 in smaller chunks and invest in multiple other secure options like tax saving fixed deposits?



Manshu March 15, 2011 at 4:58 PM

Not quite sure about what you mean by tax saving instruments under ELSS – mutual funds that come under ELSS? All the MFs listed in this post will get you 80C exemption.

When you say high or medium returns – the side of the coin is risk so please consider that in the equation as well 🙂

3 years is the lock in period for ELSS.

Where you invest should primarily be dictated with how well diversified you are. So if all your investment is in shares then one big market fall can wipe out a significant part of your savings. If all your money is in FD then you are not going to make a lot more than inflation in the long run, so that question is a bit more involved than can be answered by anyone in a comment.


nishant dhoreliya March 16, 2011 at 5:53 AM

A very simple query – If i make an ELSS investment before DTC kicks in would i continue to get tax benefit on the ELSS scheme that was launched before DTC code comes in even after DTC code kicks in ??


Manshu March 16, 2011 at 5:25 PM

Nishant – The tax benefit is that the amount of investment is reduced from your taxable income, so if you make that investment in this year or the next – it will get deducted from your taxable salary and you will get the benefit.


Sridhar March 22, 2011 at 9:38 PM

I have little knowledge on mutual funds but I was thinking of investing in HDFC Tax Saver mutual fund. On advise from friends, I decided to do some study. I have been checking the NAV of this fund for some time now (few months) and see that it is going down. What does that signify? Will it recover in the long run? Since these ELSS have a lock-in period of three years, it gives little opportunity for the investor to do anything with the investment for three years. Is there some guarantee that after three years, funds like HDFC TS will be doing good?


Loney March 23, 2011 at 6:02 AM

The NAV is decreasing because the markets are going down. This should not be a reason for worry. The HDFC Tax Saver fund is a very good fund. ELSS mutual funds have the potential to earn you inflation beating, broader market beating returns. Realistically 12-15% p.a. can be expected if you invest systematically taking the SIP route. But, no one including the company is allowed to guarantee the principal as well as the returns from the scheme. So be it.


Manshu March 23, 2011 at 3:55 PM

Sridhar – Loney has already pointed that out but let me also reiterate that as far as equity is concerned there are absolutely no guarantees, and if you make a loss then that’s yours to bear.

If you’re not comfortable with that risk then please opt for safer debt instruments.


Gopish April 5, 2011 at 3:24 AM

Hi, I want to invest around 6k per month in 3 Mutual Funds that provides Tax saving. I want to do SIP of 2k each. Can you please provide me the best Tax saving Elss schemes of 3 Mutual funds where i get good returns?


Manshu April 5, 2011 at 5:13 PM

I’m afraid I can’t narrow it down any more from the list that’s already present in the article.


vicky April 8, 2011 at 11:12 PM

coming on the business, i am a central government employee, aged 26, and monthly income of 32000/
in this regard please answer the following queries-

(1) i want to invest in ELSS to save taxes, but as i came to know from your publications that these
schemes has a lock- in period of three years, and after DTC these schemes will become irrelevant.
if i invests one of these schemes in FY 2011-12 for one year and after it, put it in a cold bag. what
would be the effect of three year lock-in-period on scheme?

(2) i want to invest Rs. 15000/ month in mutual fund through SIP for long term (20 years) please suggest me desired
portfolio. i already invests in PLI endowment Rs 2350/ month, and RS. 3000/month deducted from my
salary as NPS, and CGEHS also deducted from salary.


Praveen Kumar April 13, 2011 at 7:27 AM

Hi All

I would like to add something more….

If i go for the SIP mode on investing a ELSS bond which has 3 year lock in period, before DTC comes into picture,i will be getting tax benefit for this year.will i be getting the same tax benefit once DTC comes into live for the next two years?


Manshu April 13, 2011 at 3:22 PM

The tax benefit will be applicable only for this year. Whatever you invest in from next fiscal won’t be counted towards any tax breaks.


Arvind April 17, 2011 at 2:00 AM

I have taken SIP of 1000 Rs in SBI MSFU for 3 years , will get tax reedemption under setion 80c tax saving scheme.


Manshu April 17, 2011 at 12:27 PM

Hi Arvind – the tax benefit will only accrue for the investment you make for this fiscal (acc. to current rules). You may want to rethink your SIP if it spill over to 2012 financial year and the rules don’t change.


gauri April 20, 2011 at 10:28 AM

hi,,,,,,i m planning for tax.Recently i have come to know that i can invest viaELSS
and can get tax benefit.Plz suggest what homework can i do before selecting a suitable Fund moreover i seek ur guidance in choosing funds. Plz help n tell me criteria.


Manshu April 20, 2011 at 3:00 PM

Hi Gauri – The tax benefit you get from ELSS is that up to a lakh gets deducted from your taxable salary and that reduces your taxable income by that amount.

Before you select a fund you can look at its past performance, size, expense ratio. You can select a fund from ones in the list given above based on these parameters and please feel free to ask any more questions that you may have.


Hitesh April 28, 2011 at 5:46 AM

Hi, Good evening all,

I have an SIP of Reliance tax saving MF, now I am planning to go for another sip, can you pl. suggest me which one is batter? Is HDFC Tax Saver & HDFC Long Term Advantage Fund are difference? can I go with any of them?


Brij May 11, 2011 at 3:37 AM

Hi Sir,

My query is related to SIP, I have just completed my lock in period of 3 years ,
I have HDFC tax saver fund- folio 5112284/12.
I want to redeem all the available units but my advisor says that I can’t due to sudden change in rules, is it true? if yes then what are my options to redeem whole units.
Please revert through email.



Loney May 11, 2011 at 5:31 AM


Since you are investing via SIP, each installment has a lock-in of three years. Say, you have started your SIP for Rs.5000/- in April 2008. So, while your very first installment has completed a lock-in of three years this April, your very recent installment in April 2011 would complete its three year lock-in only in April 2014.


Brij May 11, 2011 at 11:31 PM

Dear Loney,

Thanks for your inputs, need to know since when this new policy is introduced as my friend started a month earlier then me and got all his units redeem last month only.
We both are investing through same medium (SIP) and for same Tax saver fund.



Loney May 12, 2011 at 2:57 AM

Dear Brij,

It is highly improbable that your friend redeemed all units if he continued with his SIP all these years. Because the rules for ELSS schemes were never changed since they were introduced in 1993.


Arijit S. Bohra May 15, 2011 at 5:01 AM

Hi Friends,

I recently have completed my education and started working. Need to show up some investment for claiming tax benefits. I am thinking of going for ELSS option apart from NSC.
Can someone plz help me on exactly how to invest in these funds. Do i need to approach a
broker or is there some direct way to invest in them.
Waiting for an informative response.


Manshu May 17, 2011 at 12:19 PM

The direct way is to approach the fund of your choice and have their rep come to you. If you have an online trading account already like ICICI DIRECT then you can use that to buy MFs as well.


Arijit S. Bohra May 20, 2011 at 11:43 AM

Thanx Munshi.


Amit Jha June 13, 2011 at 8:02 PM

Hi to all of you,

I am a student MBA from Pondicherry University,M doing my project on the topic”Comparision of ELSS scheme of various fund houses”

I need some guidance from all of you,please guide me on which basis i can compare the funds of different fund houses.
I have selected some points like……Beta,Asset allocation,Expense ratio,Sharpe ratio
Pls tell me some more point on which i can compare the funds


Amit singh August 28, 2011 at 10:38 AM

How would classify Dividends paid out under the funds theory from the point of view the business or entity? Do we treat it as revenue or something else?


Manshu August 29, 2011 at 5:19 AM

I’m sorry Amit – I don’t know what the fund theory is and am unable to answer your question.


Hari August 28, 2011 at 12:25 PM

Hello all,
My name is Hari, its been one year since i joined BHEL…
Im having some confusion with my investments…I m planning to quit my job after a year or 2 and go for higher studies… So I am interested in investments where “if required” i must be able to use the money at anytime….

1) I am looking into Gold, RD, mutual funds as few options… however would a recurring deposit at bank be an attractive one…..i just felt that investment should be diverse and an RD wud be safe though the interest is just 9%

2) This last year i had saved money in VPF (my company’s voluntary provident fund) for tax exemption and for accumulating money to pay the bond amount for company when i quit….now tht the amt has accumulated….I do not know whether i shud divert money away from VPF or stick to it….
VPF will however be taxed if i stop before 5 years but atleast i can take my money out unlike PPF or NSC

im looking into ELSS and postal life insurance where lock in is only 3 years

Please help me out …


Manshu August 29, 2011 at 5:18 AM

If you want the money at any time then I would only suggest safe instruments where your capital is protected like RD or FD or Post Office deposit and other stuff like that. The reason is that the stock market is volatile and it may happen that the market is down when you need to cash out, and you have to sell at a loss. You should only invest that amount in the stock market that you don’t foresee using for a long time frame.


Bharat September 28, 2011 at 4:21 PM

Hi Manshu,

I want your expert opinion on few funds that I have invested in. I am not in need of any immediate money, but the returns from these funds are very less as compared to the bank rate( currently) on deposits. My question is should I stay invested or move out of these funds?
if stay invested- for how much more duration?
if move out- what instrument to invest in along with the time horizon?
The funds are:-
1. SBI Infrastructure fund SR 1 (g)- Invest price- 10, current NAV- 8.28. Invested in 2007.
2.SBI Tax Advantage Sr-1 (G)- Invest price- 10, NAV-10.49. Invested in 2008.
I wish to channelize my investments in a better way..and your expert opinion is much appreciated.


Manshu September 29, 2011 at 4:20 AM

I’m sorry to disappoint you but I don’t give any personal recommendations on this blog.


Sachin Garg October 5, 2011 at 9:58 AM

Hi Manshu,

I have a question regarding redeeming the ELSS fund. If some one opted the Monthly SIP option to invest in the ELSS fund then How he can redeem all the units of the fund after 3 years. For ex. I started investment in ELSS fund from Jan 2009 and the last SIP (if I am planning to redeem after 3 years lock in period) will be invested in Dec 2011.

1. So would I able to redeem all the units in Jan 2012 or only the units which I purchased in Jan 2009 from first SIP.
2. Does it mean every SIP locked for 3 years?
3. If I want to redeem all the units of ELSS fund then it would only be possible after 3 years of last SIP investment.

Appreciate your response…


Manshu October 5, 2011 at 11:41 PM

Hi Sachin,

1. All units individually should exceed three years, they aren’t clubbed together, so units bought in Oct 2011, can be sold only after Oct 2014 and so units bought in Nov 2011 after 2014.

2. The units are locked for 3 years. Whether you buy SIP or lump sum doesn’t have an impact on this. Your units will be locked 3 years from the date of purchase.

3. You can start selling individual units as soon as the three year period gets over on them. You don’t have to wait for 3 years to end from the late of the last installment of the SIP.

I hope that answers your questions, and let me know if you have any follow up questions.


Ajith October 6, 2011 at 3:33 AM

Hi Manshu,

I have taken a HDFC SL CREST Policy few days back.I just want to exit from it ,please let me know whether it is possible or do i have to wait for 5 years.If yes what is the amount i will be loosing ,i bought the policy on oct 03 2011 with 50k as every year premium for 5yrs.Please help me out..

Thanks and Regards,


Manshu October 6, 2011 at 4:08 AM

Hi Ajith,

My knowledge on ULIPs is very limited as I’m not interested in them at all, and I’m afraid I won’t be able to give you an accurate answer. You could try asking this question to the agent who sold you this and hope for a way out from that. I think there must be a way out but with penalties and fines.


Reddy October 9, 2011 at 1:13 AM

Manhsu – You are doing a great job.

One question, I have no need of doing any tax saving. However, can block my funds > 3 years. In such an event Is ELSS a god option compared to other general open Mutual funds.

Appreciate your advise.



Manshu October 11, 2011 at 5:38 AM

Thanks – I wouldn’t do that. There is absolutely no reason to block the funds like that since these type of funds haven’t done better than other funds, and you are better off buying a diversified large fund or balanced fund that has done well.


Madhu October 28, 2011 at 9:43 PM

I am going to join in a company in this November. Then, how to reduce my tax ? In which plans I need to invest my money so that I will be benifited from my tax ?


Madhu October 28, 2011 at 9:44 PM

I am going to join in a company in this November. Then, how to reduce my tax ? In which plans I need to invest my money so that I will be benifited from my tax ? ?


Manshu October 29, 2011 at 1:04 AM

If you’re going to join a company this Nov, and sounds like this is your first company then you may not even reach the taxable limit which is Rs. 1.8 lacs till March, so first find out if you do or not.


Rashmi October 29, 2011 at 9:45 PM

Hye, i hve invested rs. 4000 per month through sip from april 2011 onwards now my questions is= can i redeem all units in april 2012? Next question Which wil be most profitable- i wil extend the period for another two year for further Rs. 4000 sip investment OR i will leave my first year investment that is 48000 for another two year.


Manshu October 30, 2011 at 10:38 PM

I assume you have invested in ELSS right? In that case your lock in is 3 years, and you can’t redeem before that. The 3 years is calculated from the time of purchase, so you can’t redeem anything on April 2012.


Rashmi October 31, 2011 at 7:23 PM

I have not invested in elss . I hve invested only for one year in different mutual fund which is not tax saver. So please now reply my question as asked


Manshu October 31, 2011 at 7:51 PM

If you haven’t invested in ELSS mutual funds then yes you can redeem them at your will. You can redeem all of them in April 2012.

If you redeem within a year then some funds charge an exit load of 1% which means they deduct a percent from what they give you. You need to check if the funds you bought did have this clause, and if you’d like to avoid it.

I can’t understand the rest of your question – there is no golden rule that says extending the period will or won’t help. I’m sorry I can’t answer that.


Dr. NIZAM December 17, 2011 at 8:27 PM

I have purchased L144G SBI- Infrastruscture Fund -I- Growth
@10 on july2007 but now its value is8.20 Can I redeem all units
RelianceEQUITY ADANTAGE FUND -RETAIL PLAN -GROWTH PLAN on 08Aug 2007 but The Reliancecapital Asset Managment limited has changed my E A F -R P -GP toRELIANCE NATURAL RESOURSES FUND GROWTH PLAN -GROWTH OPTION since 25/02/2008 of which N A V is LOW
Let me know what should I do to regularise my oruginal Plan


Manshu December 19, 2011 at 1:40 AM

I’m sorry but I have no idea about what you’re wanting to do. Did you buy this through an agent who can help you now or how did you buy these funds?


manish nautiyal December 21, 2011 at 2:40 PM

Hi Manshu

I want to invest in tax saving MF. But somewhere I read that govt will remove ELSS from next year. So can I invest it now?


Manshu December 21, 2011 at 8:52 PM

If DTC is implemented next year then the tax benefit of ELSS will go away, but the tax benefit does exist today and you can invest in them today.


manish nautiyal December 21, 2011 at 9:00 PM

You are right.
What is DTC


Manshu December 21, 2011 at 9:07 PM

Direct Tax Code, which is something that is expected to replace the current Income Tax Act 1957 that governs the personal taxation right now.


Vineet G. December 21, 2011 at 11:28 PM

Dear Sir
What is diffrence to buy MF dierct or thorugh agent ?
what is the commition retio on MF, mean one time or on every SIP?
What is the CAMP office ?


Ankur Sinha December 23, 2011 at 12:53 PM

Once the Lock in period of 3 years is over for ELSS and I redeem after 3 years , will it attarct any income tax ? or it will come under long term tax gain , which is 0% tax ?


Manshu December 23, 2011 at 10:00 PM

Per current laws you won’t have to pay any capital gains so if you sold something today then that will not attract capital gains. 3 years down the line if Direct Tax Code is implemented and there is capital gains then – at the time you will have to pay tax.


Ankur Sinha December 23, 2011 at 11:34 PM

So in new DTC mutual funds will be taxable after one year ? ans ELSS after 3 years ?


manish nautiyal January 11, 2012 at 5:02 PM

what I have read on the net is that DTC will remove ELSS


Manshu January 12, 2012 at 2:36 AM

Yes that’s right Manish though it doesn’t look like DTC is going to get implemented this year.


manish nautiyal January 11, 2012 at 5:06 PM

Hi mansu
I want to purchase one hdfc mf for that I have to open SIP a/c and after that I want to purchase SBI mf for that again I have to open SIP a/c. For every new mf I have to open one new SIP. What is the procedure.


Manshu January 12, 2012 at 2:36 AM

Hmmmm, you don’t open a SIP account – you open a Demat account and then you start a SIP – so you don’t need to open a new account every time you have to invest in a new mutual fund.


ROOP January 28, 2012 at 4:49 PM

We are three brothers . We just sold our old house for Rs.55,00,000/- . The LTCG calculated thereon is about Rs.42,00,000/-. Now we want to construct a new house.
Our question is whether we have to invest in equal proportion i.e. Rs.14 lacs each or can invest in odd ratio i.e.10 lacs,18 lacs & 14 lacs for the construction of new house to save the LTCG u/s 54 of the I T Act ?


Jitendra P.S.Solanki February 12, 2012 at 9:05 PM


To save LTCG under Sec 54, you have to invest the capital gains within two years for purchasing or within three years for construction of new house. Hence, you invest in whatever manner the house construction should gets completed within three years from sale date.


Prakash February 13, 2012 at 12:41 PM

Please let me know the latest elsa m fund


Roshni Bhatia February 19, 2012 at 10:52 PM

This is the time of the year where investors rush for tax saving and are bombarded with tax saving schemes. This article provides apt information to take correct tax saving decisions. Thanks for sharing.


Ashish March 20, 2012 at 10:00 AM

If I buy ELSS mutual fund in name of my wife, can I take tax exemption for that. Or it has to be in my name only.


bisvas March 20, 2012 at 11:18 AM

hello onemint team..esp loney for excellent insights
please advise if i have ppf for 80 c, regular SIP in MF, and other useless insurances( along with term insurance) which mop up 80c , should i take ELSS or not dumping the junk policies (like endowment/cashback/ LIFE HAPPY schemes ?

What about infra bonds 20000 which have been removed from this fiscal


Garvit September 16, 2012 at 3:22 PM

Sir, please can you explain me how dtc implementation is going to affect ELSS mutual funds ???

thanks and regards


Garvit September 16, 2012 at 3:43 PM

do they consider mark to market component while selling these mutual funds after lock in period ?


mohsin January 28, 2013 at 9:45 PM

I more information about else fund investment….


mohsin January 28, 2013 at 9:48 PM

Since when elss fund investment started is really better to invest in elss than ppf


Indian Stock Market Tips February 22, 2013 at 9:58 AM

Nice post. Thank you for sharing. Stock market trading can fetch you a lot of profit if we play it smart.


Mayank September 4, 2014 at 2:06 PM

Hi Manshu & Shiv,

Do we have any index funds in India that qualify as an ELSS?



Shiv Kukreja September 4, 2014 at 8:23 PM

Hi Mayank,
No, there is no index fund in India which qualifies as an ELSS.


Mayank September 5, 2014 at 1:58 PM

Thanks for the confirmation, Shiv!

Don’t you think that there is scope for a passive ELSS fund? I wonder why this has been ignored by all AMCs.



Shiv Kukreja September 6, 2014 at 1:36 PM

Yes, I agree with you Mayank, there is a scope for such a passive fund. Probably Indian market offers superior returns vis-a-vis an index, that’s why no AMC offers such a fund.


Miren Karamta March 11, 2015 at 1:01 PM

Dear Sir,
I am already having an SIP account with ICICI TAX Plan since NOV 2012. My question is, if I purchase additional units now for the same plan, then the lock-in period will get be counted again from today?


Shiv Kukreja March 11, 2015 at 1:09 PM

Yes, every additional investment has a lock-in period of 3 years.


Miren Karamta March 11, 2015 at 1:15 PM

Thanks Shiv Kukreja for prompt response.
So is it advisable to invest in same scheme?
Recommend me a better option. I am planning to invest 30k as of now.


Shiv Kukreja March 11, 2015 at 1:39 PM

If the previous scheme is doing good, then you should continue with the same. Otherwise, explore other options.


manju June 24, 2015 at 11:33 PM

I want to invest in elss through sip medium however will my sip will stop if I fail to pay monthly amount due to lack of funds in my account.


Rohit May 13, 2016 at 10:59 PM

I am 29 year old guy. I want to start my investments plans. I am very much confused about SIP, mutual funds,ELSS, DEMAT ACCOUNT etc. All these concepts goes very high from my mind. I would like to start my investments right now. Please help me. How to start?? how much to invest initially?? Monthly or quarterly?? How much I will get in return?? Please help


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