NFO: Parag Parikh Tax Saver Fund- Another addition to the ELSS bandwagon

The fund is eligible for tax deduction up to ₹1.50 lakh under Section 80C

Equity as a tax saving investment (equity-linked savings schemes – ELSS) has been gaining prominence over the last several years for two reasons. One, the long-term return potential is much higher compared to other fixed return investment options, which are also eligible for tax benefit under Section 80C of Income Tax Act 1961, such as Public Provident Fund (PPF). Second, ELSS possibly has the lowest lock-in period of three years, compared to alternatives such as PPF, bank tax-saving deposits.

Thanks to the increasing shift in preference in favour of equity tax saver schemes, almost every mutual fund house offers equity linked savings scheme (ELSS). And the latest one to join the ELSS bandwagon is PPFAS mutual fund. Parag Parikh Tax Saver Fund is open for subscription till July 18, 2019. The fund will reopen for subscription beginning July 26, 2019.

The scheme shall invest about 80 per cent of its assets in equity and related instruments and the balance in debt instruments. It will invest only in the shares of India-listed companies and not in arbitrage instruments.

In terms of its market cap preference, the fund will have the flexibility to juggle allocation across large-, mid- and small-cap stocks. The performance of Parag Parikh Tax Saver Fund shall be benchmarked to Nifty500 TRI Index. This contrasts with most existing ELSS funds which have a large-cap slant. The minimum investment in the scheme shall be ₹500.

As with any other ELSS scheme, investment in the scheme shall be subject to a three-year lock-in and redemption from the scheme will be allowed only upon completion of three years.

According to the scheme’s investment mandate, the fund will look for cash-generating businesses that are low on debt, companies that are minority shareholder-friendly and have a strong moat/competitive advantage. The scheme will offer only the growth option. The fund does not offer regular pay-outs by way of dividend.

How have ELSS funds fared?

There are about 36 ELSS schemes that are now available in the market. The average one-year return of funds in the ELSS category was 1.8 per cent, lower than the 2.3 per cent rise in the Nifty500 TRI Index.

Over three- and five-year periods, the schemes in this category clocked an average compounded annualised return of 10.7 per cent and 12.3 per cent respectively. Nifty500 TRI Index clocked 11.2 per cent and 10.9 per cent during these periods respectively.

The writer is an independent financial consultant

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