MF POINTERFor Private Circulation only

ELSS – Invest with a Long Term horizon

Issue - 98 February, 2014

February, 2014 Smart investing starts here 1

Ventura Research Desk:

The article for this month “ELSS – Invest with a Long Term Horizon” highlights about an additional way to save taxes by investing in ELSS mutual funds over and above the traditional instruments. It focuses on how beneficial it is to invest in equities provided you have a long term investment horizon. Turn to page 2 for details on the performance of various mutual fund categories in the industry. Top performing equity and debt mutual fund schemes are highlighted on Page 6 & 7.

Happy Investing!!

Juzer Gabajiwala

Markets:

• The Indian bourses rebounded sharply in February, with key benchmark indices – the Sensex and Nifty - soaring by 2.96% and 3.08%, respectively. Indian equity markets made a slow start but, later bounced back and closed the month with good gains. Initially, markets remained subdued after the Government revised the GDP growth rate downwards from 5% to 4.5%. Weak global cues also drove markets down. However, markets gained as investors cheered the interim budget announcements made by the Finance Minister P Chidambaram. Traders also welcomed the Government's resolve to contain the fiscal deficit at a target of 4.6% of GDP in 2013-14 and 4.1% of GDP in 2014-15. Markets rose further after the data showed that Foreign Institutional Investors (FIIs) remained net buyers of Indian equities.

• On the macro economic front, India's industrial output dropped by 0.6% in December, registering a contraction for the third consecutive month, due to a decline in manufacturing production. However, on a brighter note, consumer inflation for January eased to its lowest level in two years, from 9.87% in December to 8.79% in January; the moderation came mainly on the back of a fall in food prices.

• In the case of bond markets, the benchmark 10-year bond yield closed at 8.86% for the month of February 2014 as liquidity concerns ahead of the financial year end dampened investor sentiments. Weakness in the rupee also pushed bond prices higher. However, yields found some support after the Government announced slightly lower borrowing numbers and a better-than-expected fiscal deficit target in the Interim Budget report.

• According to data released by the Securities and Exchange Board of India (SEBI), FIIs continued to remain net buyers in the equity segment during the month. They bought equities to the tune of Rs. 1,404.30 crore against Rs. 714.30 crore recorded in the previous month, while domestic mutual funds remained net sellers in the Indian equity markets, to the tune of Rs. 1,207.50 crore (upto 24th Feb, 2014).

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February, 2014Smart investing starts here2

Category returns: For the month of February 2014, all of the categories posted positive returns. Meanwhile, the top five category gainers were Equity - Pharma, ELSS, Contra, Infrastructure and Diversified. These categories generated absolute returns in the range of 3.57-7.62%. However, the bottom categories were Gilt, Income and Floating rate funds. These three categories merely rose by 0.01%, 0.28% and 0.64%, respectively, during the month.

*Returns as on 28-Feb-2014

Top 5/Bottom 5

Equity Schemes

Top Performers Under Performers

Absolute Absolute Scheme Name Ret. % (1M) Scheme Name Ret. % (1M)

PineBridge World Gold Fund 11.97 Baroda Pioneer PSU Equity Fund (1.92)

DSPBR World Gold Fund 9.60 SBI PSU Fund (1.60)

PineBridge Infra & Eco Reform 7.32 DSPBR Natural Res & New Energy (0.55)

Mirae Asset Emerging BlueChip 6.91 GS PSU Bank BeES (0.50)

ICICI Pru Midcap Fund 6.54 Kotak PSU Bank ETF (0.50)

Debt Schemes

Top Performers Under Performers

Annualised AnnualisedScheme Name Ret. % (1M) Scheme Name Ret. % (1M)

ICICI Pru Moderate 33.95 ICICI Pru Gilt-Treasury-PF (19.57)

ICICI Pru Cautious 17.10 DWS Inflation Indexed Bond (15.41)

IDFC Asset Alloc-Mod 15.89 DWS Gilt Fund (12.96)

FT India Life Stage FOFs-40 15.34 Baroda Pioneer Income Fund (8.07)

Religare Invesco Gilt-Long Duration 14.34 Baroda Pioneer Dynamic Bond (7.94)

*Returns as on 28-Feb-2014

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With the financial year coming to an end, most of us are in the process of finalizing avenues to invest, which will give us a tax deduction of up to Rs 1 lakh under Section 80C.

Over the years, many individuals have started investing in equity linked savings scheme (ELSS) under Section 80C. This is because along with the tax deduction, the investor also enjoys the potential upside of investing in the equity markets. But wherever there is a potential for an upside, there is also the possibility of a downside.

However, quite often ELSS is not looked at as an investment product that should be held for the long run, beyond the 3 years lock-in period which enables a tax break. Investors tend to withdraw their funds after getting the tax break. Although, ELSS is a great way to save taxes, staying invested in equity for just 3 years does not usually deliver the best possible returns. Time and again, studies have shown that to get the best benefits from equity, the longer the investment term, the better the returns and the lower is the possibility of negative returns. Hence it is ideal to look at this product for at least 10-15 years.

To draw an analogy (please note it is not a comparison): We are comfortable putting money in PPF for a fixed return (which has a 7 year lock-in and tenure of 15 years). We also purchase insurance policies, wherein we pay yearly premium and our money is locked-in for the term of the policy. Though we may consider these as safer bets, as they are not affected by volatility, the biggest risk is that they are unable to generate inflation-adjusted real returns over the long run.

So then why not look at equity as a part of your long term corpus? This asset class has proven to be the best performer over the long term. The icing on the cake is that no tax is levied on the long term capital gains from equity funds and dividends are tax free too.

ELSS – Invest with a Long Term horizonELSS – Invest with a Long Term horizon

ELSS Category 1 Yr 3 Yrs 7 Yrs 15 Yrs

Weighted Average Returns 11.62 8.26 5.83 3.47

Best ELSS Fund 20.96 15.56 11.89 20.15

Worst ELSS Fund 3.23

CNX Nifty 3.49 6.01 6.21 12.68

(1.23) (6.02) (5.25)

%CAGR Returns as on 17-Feb-2014. SIP of Rs. 10,000 per month.

We believe that instead of making a lump sum investment just for the sake of tax saving, investors should stagger their investments from the start of the financial year. Ideally, you should choose a fund for investment purposes based on different investment time frames and fund corpuses.

In many cases investors tend to exit an ELSS investment once the lock in period is complete because they suffer notional losses due to market fluctuation or due to poor selection of funds. While the three year milestone can be used to review the performance of an ELSS investment, it should not be used as an automatic exit point.

Holding ELSS for a period of 7 years, as the data clearly shows, is better than stepping out at the end of 3 years. But look at the benefits of staying invested for 15 years. It is not only more fruitful for investors in terms of returns but it reduces the probability of facing negative returns as well. A minimum of 10-15 years is an ideal horizon for any ELSS investments, mainly because it gives the fund manager the room to take a long term view on the market and invest accordingly, as is clearly reflected from the long term returns.

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Scheme Name AUM 1 Yr 3 Yrs 7 Yrs 15 Yrs

(Rs.Cr.)

Axis LT Equity Fund 854.05 20.96 15.56 - -

Birla SL Tax Plan 115.89 12.01 9.35 7.42 -

Birla SL Tax Relief '96 1382.70 12.63 9.29 - -

BNP Paribas Tax Adv Fund 155.71 8.99 10.23 8.21 -

BOI AXA Tax Adv Fund 30.64 14.40 9.29 - -

Canara Rob Equity Tax Saver Fund 599.82 4.47 6.64 - -

DSPBR Tax Saver Fund 718.18 10.52 9.81 9.44 -

DWS Tax Saving Fund 40.94 5.29 6.81 4.44 -

Edelweiss ELSS Fund 25.17 11.53 10.23 - -

Escorts Tax 2.50 3.33 -

Franklin India Taxshield 949.88 10.08 8.66 10.58 -

HDFC Long Term Adv Fund 846.23 16.00 10.38 10.44 -

HDFC TaxSaver 3,423.37 12.66 6.13 8.88 20.15

HSBC Tax Saver Equity Fund 161.58 9.96 9.32 8.81 -

ICICI Pru Tax Plan 1,541.09 17.37 10.99 11.89 -

IDFC Tax Advt(ELSS) Fund 165.59 15.73 12.38 - -

ING Tax Savings Fund 21.18 4.03 3.43 5.27 -

JM Tax Gain Fund 27.12 4.04 4.46 - -

JPMorgan India Tax Advantage Fund 5.08 6.14 5.16 - -

Kotak Tax Saver Scheme 327.19 0.88 3.43 -

L&T Tax Advt Fund 1,083.41 4.28 5.38 8.95 -

L&T Tax Saver Fund 26.24 13.19 6.29 5.13 -

LIC Nomura MF Tax Plan 27.73 9.34 6.75 4.71 8.75

Quantum Tax Saving Fund 15.57 9.85 9.32 - -

Reliance Tax Saver (ELSS) Fund 1,881.90 14.11 7.40 9.27 -

Religare Invesco Tax Plan 138.10 13.10 9.68 11.22 -

Sahara Tax Gain Fund 10.64 19.03 8.22 9.94 3.23

SBI Magnum TaxGain'93 4,021.74 12.39 9.47 - -

Sundaram Tax Saver 1,090.90 1.70 4.55 6.06 -

Taurus Tax Shield Fund 84.62 3.91 3.89 7.50 11.05

Union KBC Tax Saver Fund 55.27 5.67 - - -

UTI ETSP Fund 399.61 5.34 5.95 5.90 -

(6.02) (5.25)

(1.23)

Hence, equity can be a risky investment if you're investing for a short period of time, but with time on your

side, equity is extremely rewarding.

Debt and Hybrid Funds Corpus NAV (`) Annualised(%)

( Crs)# Gr Div 3 mths 6 mths 1 yr

Income Funds

Birla SL Medium Term Fund 2,209.74 15.05 11.15

Taurus ST Income 172.38 2,215.94 1,528.49

Birla SL ST Opportunities Fund 2,530.81 20.29 12.98

Ultra Short Term Plan

Templeton India Ultra Short Bond Fund 3,537.05 16.70 10.09

DWS Ultra Short Term Fund 2,307.70 15.17 11.32

Taurus Ultra ST Bond Fund 117.50 1,520.90 1,002.40

Gilt Funds

Sundaram Gilt Fund 31.23 20.89 11.96

DSPBR Treasury Bill Fund 474.69 25.81 10.35

Liquid Funds

Principal Retail Money Mgr 18.74 1,431.86 1,059.87

Religare Invesco Overnight Fund 10.38 1,493.79 1,001.36

Escorts Liquid Plan 195.33 19.70 15.04

Hybrid - Monthly Income Plans(MIPs)

Birla SL MIP II-Wealth 25 185.54 22.30 11.56

LIC Nomura MF MIP 79.86 38.65 10.41

Crisil Liquid Fund Index

Crisil Composite Bond Fund Index

`

9.43 13.86 10.40

9.31 10.20 10.08

8.45 12.53 10.00

9.61 10.85 10.17

8.75 11.03 9.99

8.87 10.82 9.98

10.85 13.02 18.21

7.68 9.24 10.07

9.36 10.25 9.82

8.18 8.80 9.75

9.57 10.16 9.65

8.86 20.95 8.97

7.71 12.07 8.93

8.69 10.31 9.15

5.53 11.06 3.17

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Performing Mutual Fund Plans

*Returns are annualized as on 28th February 2014# Monthly Corpus as on January 2014.

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Performing Mutual Fund Plans

Equity and Hybrid Funds Corpus NAV (`) CAGR (%)

( Crs)# Gr Div 1 yr 3 yrs 5 yrs

Equity - Large Cap

Religare Invesco AGILE Fund 35.61 8.48 8.50

LIC Nomura MF Growth Fund 65.68 14.64 12.98

Birla SL Top 100 Fund 317.85 28.28 13.31

Equity - Multi cap

Birla SL India Opportunities Fund 45.41 69.09 19.26

Tata Ethical Fund 125.56 87.49 52.51

Equity - Mid & Small cap

SBI Magnum MidCap Fund 215.93 32.77 18.15

Reliance Small Cap Fund 345.79 12.13 11.09

UTI Mid Cap Fund 255.25 40.46 27.59

Equity - Sectoral

ICICI Pru Technology Fund 210.63 38.87 28.68

ICICI Pru Exports & Other Services Fund 262.44 29.63 20.03

Tax Saving Scheme(ELSS)

Axis LT Equity Fund 854.05 17.79 14.18

ICICI Pru R.I.G.H.T Fund 56.01 18.05 16.27

Religare Invesco AGILE Tax Fund 6.44 9.24 9.24

Balanced Fund

HDFC Children's Gift Fund-Invest 440.97 58.85 58.85

HDFC Balanced Fund 1,197.12 27.14 19.54

Sensex 21,120.12

Nifty 6,276.95

`

20.80 9.83 15.18

15.82 6.09 19.20

15.46 9.94 20.80

36.43 10.55 26.66

21.72 13.31 27.23

29.50 17.01 29.63

25.80 10.15 -

25.35 12.43 27.74

58.42 23.18 42.86

54.56 22.37 30.83

26.37 15.65 -

20.57 16.61 -

19.07 8.41 13.01

21.17 14.46 26.56

18.00 8.41 16.27

11.97 5.81 18.87

10.26 5.58 17.81

*Returns are compounded annualized as on 28th February 2014# Monthly Corpus as on January 2014.

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