Quantum Mutual Funds: A deep dive into tax-saving equity investments and ELSS funds

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Based on one’s financial goals and risk appetite, there are a variety of mutual funds to choose from. In recent years, many taxpayers have turned to the Equity Linked Savings Scheme or ELSS to get regular returns, generate wealth, as well as avail tax benefits. Moneycontrol got in touch with Sorbh Gupta, Fund Manager, Equity, from Quantum Mutual Fund to know more about ELSS.

Investors today generally look for two key functions while choosing an investment option – creating wealth and tax saving. While there are multiple options such as PPFs, FDs and life insurance that help achieve these goals, ELSS stands out with the lowest lock-in period of 3 years. In comparison, PPFs have a five-year lock-in period, and Vikas Patras have five to six year lock-in periods. ELSS are equity-linked funds that offer tax exemption from one’s annual tax-paying income under Section 80C of the Income-Tax Act. The maximum investment limit for ELSS funds is Rs 1,50,000, of which the applicable tax slab percentage is saved. For example, an investor with a 30% tax slab can save Rs. 45,000. Since it is an equity-based fund, ELSS can give superior returns in the long term.

Talking about what kind of investors should invest in ELSS funds, Mr Gupta said that while the schemes are open for all types of investors, they are best suited for salaried professionals who wish to save taxes. Since equity investing requires a risk appetite and is volatile, it might not be the best choice for retired employees who pay tax on their pensions or do not have a lot of savings. Gupta also opined that ideally, people should hold their investments even after the lock-in period for it to behave like an asset class.

The conversation then ventured into the differences between ELSS funds and FDs. While the major difference is in the lock-in period, ELSS schemes also offer better returns. A traditional FD would give 5-6% returns and equity funds can easily go up to 14-15% returns in the long run while India’s economy shows steady growth.

“Your FDs can save you taxes and are theoretically kind of safer, but if you consider inflation, they are not safe. Actually, equity is the safest when you want to save yourself from inflation”, Gupta said. The right way to invest in ELSS is to divide the investment amount by 12 and start an SIP around April. This gives a good way of averaging for the retail investors and one does not get stuck up in Feb-March when companies generally ask for investment proofs.

When asked about the key things one should look at before choosing the right fund to invest in, Gupta said that the terms of returns and consistency of returns are important. In addition, one should also consider the churn ratio of buying and selling done by the fund, the risks taken by the fund, and the philosophy of the fund manager.

Gupta then shed some light on the Quantum Tax Saving Fund which is a tax-saving fund within the ELSS framework. Having a value and process-oriented approach, Quantum Tax Saving Fund follows a margin of safety approach and avoids holding stocks with noise around them. Additionally, since their churn value is close to 7.63%, the funds are held for 4-5 years. The funds also follow a portfolio team approach so that investors are not affected if fund managers transition out or are not available. Quantum also follows an investor-first approach and prioritises capital preservation over capital appreciation, setting itself apart from other brokerage funds.

In conclusion, Gupta advised investors to save a corpus amount for health or financial emergencies (in FDs or liquid funds), which could be 6-12 months of expenses, and then look for asset classes to invest in to save tax as well as generate wealth. “For a retail investor, we believe SIP is the best model to do an equity investment as well as an ELSS investment”, he further added.

Moneycontrol journalists were not involved in the creation of the articleFeat

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