NFO Pick – (Bajaj Finserv ELSS Tax Saver Fund)

6 Jan 2025 , 10:15 AM

ELSS FUNDS – WHAT EXACTLY ARE ELSS FUNDS?

ELSS funds are equity funds with an added tax benefit. The only condition is that these funds, once invested, have to be mandatory held for a period of 3 years from the date of the purchase. The ELSS funds can be purchased either in lumpsum or as SIP. What is considered is the total amount invested in ELSS during the financial year. That amount is exempt up to a maximum of ₹1.50 lakhs per financial year. However, there is an important point that one must remember about the tax benefits on ELSS funds.

The Section 80C limit under the Income Tax Act is an umbrella limit, where ELSS is one of the items. It includes exemption for life insurance premium paid, PPF contribution, CPF contribution, ULIP contributions, tuition fees for children, principal on home loan etc. The limit of ₹1.50 lakh is applicable to all these outlays put together (including ELSS contributions). Assuming you have not other outlays, your annual purchase of ELSS up to ₹1.50 lakhs is exempt in the year of purchase. One thing to note is that Section 80C is only available under the old tax regime and not under the new tax regime (NTR). Hence to get benefits of ELSS under Section 80C, you must specifically opt for the old tax regime.

HOW ELSS TAX EXEMPTION BOOSTS YIELD

Here we compare two funds; diversified equity fund and ELSS fund with similar portfolio. We assume that ELSS is the only contribution to Section 80C for the year.

Diversified Equity Fund	Amount	ELSS Fund	Amount
Invested amount	₹1,50,000	Invested amount	₹1,50,000
Holding Period	3 Years	Holding Period	3 Years
Redemption Value	₹2,40,000	Redemption Value	₹2,40,000
Plain CAGR Yield	16.97%	Plain CAGR Yield	16.97%
Section 80C Exemption	Nil	Section 80C Exemption	₹1,50,000
Tax Bracket	30%	Tax Bracket	30%
Tax Exempt Amount	Nil	Tax Exempt Amount	₹45,000
Effective Investment	₹1,50,000	Effective Investment	₹1,05,000
Revised Effective Yield	16.97%	Revised Effective Yield	31.74%

Here is how the ELSS advantage works. The investor gets ₹45,000 tax benefit, which is reduced from the original investment to get the effective investment. The ELSS fund in this case, with the same portfolio and performance, boosts the effective yield from 16.97% to 31.74%. Of course, in both cases, the capital gains are less than the base annual exemption limit for LTCG of ₹1.25 lakhs. Hence tax on LTCG is not considered.

HOW ELSS FUNDS PERFORMED IN INDIA?

The Bajaj Finserv ELSS Tax Saver Fund is an ELSS fund NFO (classified by AMFI as equity fund) investing predominantly in equities with a lock-in period of 3 years. There are a total of 40 ELSS funds in India managing total AUM of ₹2,45,689 Crore.

Scheme Name	Return (%) 1-Year	Return (%) 3-Years	Return (%) 5-Years	Daily AUM (₹ in Crore)
Motilal Oswal ELSS Tax Saver Fund	49.61	28.61	25.98	4,486.43
SBI Long Term Equity Fund	28.78	24.78	25.01	28,050.34
HDFC ELSS Tax Saver Fund	23.54	21.99	21.34	15,888.54
ITI ELSS Tax Saver Fund	25.82	21.65	20.17	400.17
JM ELSS Tax Saver Fund	32.81	20.64	23.02	188.42
Franklin India ELSS Tax Saver Fund	25.43	20.14	21.67	6,992.75
DSP ELSS Tax Saver Fund	27.08	20.02	22.48	16,838.23
HSBC Tax Saver Equity Fund	36.49	19.74	21.57	264.07
HSBC ELSS Tax Saver Fund	36.98	19.33	20.61	4,379.80
Taurus ELSS Tax Saver Fund	21.70	19.01	18.69	80.78

Data Source: AMFI

The table provides the performance of top 10 ELSS funds on 3-year returns; which syncs with the mandatory lock-in period of ELSS funds. Returns beyond 1 year are CAGR returns.

• On a 1-year returns basis, ELSS Funds generated maximum returns of 49.61% and minimum returns of 11.32%. The average returns over a 1-year period was 23.49%.
• On a 3-year CAGR returns basis, ELSS Funds generated maximum returns of 28.61% and minimum returns of 8.94%. The average returns over a 3-year period was 17.37%, which is impressive considering that this is without accounting for tax gains.
• Over a 5-year CAGR period, ELSS Funds generated maximum returns of 32.60% and minimum returns of 13.18%. The average CAGR returns were 20.57%.

As we have already seen earlier, the effect post tax returns get magnified in ELSS funds, when the benefits of Section 80C are also incorporated.

GLANCE AT THE BAJAJ FINSERV ELSS TAX SAVER FUND NFO

Here are key details of the Bajaj Finserv ELSS Tax Saver Fund NFO.

• The NFO opened on December 24, 2024 and closes on January 22, 2024. Being an open ended fund, the sale and repurchase at NAV-linked prices start on February 03, 2024.
• On the risk-o-meter, the Bajaj Finserv ELSS Tax Saver Fund is classified as a High Risk fund due to its predominant equity exposure and the risk of active management.
• The investment objective of the fund is to generate long term appreciation, with the added benefits of Section 80C. It is benchmarked to the BSE 500 TRI.
• There will be no entry load on this fund. Also, due to the mandatory 3-year lock-in period for ELSS Funds, there will also be no exit loads on the fund.
• The Bajaj Finserv ELSS Tax Saver Fund will offer regular and direct plans. In terms of the options, the fund offers the growth and the IDCW plan to investors.
• Nimesh Chandan, Siddharth Chaudhary, and Sorbh Gupta will be the fund managers for the Bajaj Finserv ELSS Tax Saver Fund; assisted by a team of multi-disciplinary specialists.
• The minimum investment amount in the NFO will be ₹500 and multiples of ₹1 thereof. Minimum additional investment and minimum SIP amount will also be ₹500 only.
• With over 65% exposure to equities, Bajaj Finserv ELSS Tax Saver Fund will be classified as an equity fund for tax purposes. Under the new tax rules effective from July 23, 2024; short term gains (less than 12 months) will be taxed at 20% plus cess; while long term gains (over 12 months) are taxed at 12.5%, with ₹1.25 lakhs base exemption.

The Bajaj Finserv ELSS Tax Saver Fund offers a good alternative to invest via SIP mode and get the dual benefits of capital appreciation and tax benefits in the long run.