An investor is always in a dilemma of whether to invest in ELSS through Lump Sum or via Systematic Investment Plan. Both the methods have their own advantages and disadvantages.

Generally, SIP is recommended as it reduces the risk from market movements and provides the benefit of cost averaging.

Lump Sum Investments Versus Systematic Investment Plan Returns

Investing in Mutual Funds via SIP and lump sum are both good strategies for investment.

An investor having INR 100 for 10 years will stay invested for the entire period of 10 years. But in case of SIP if INR 10 is invested every year for 10 years, then first installment of INR 10 will be invested for 10 years, next installment for 9 years and so on. So here the growth is less.

Both the modes have their own benefits. A person having lumpsum amount but would not like to make a lumpsum investment into equity oriented fund can invest the entire amount in a debt fund, and can gradually transfer a fixed amount over a period of time through STP (Systematic Transfer Plan) to the fund of his choice.

This will give him the advantage of averaging out the investments by making a lumpsum investment. Moreover, his cash will not stay idle and will be getting a fixed return in the debt fund.

An investor should also keep in mind the availability of funds while deciding the mode of making investments.

Invest in ELSS Through Lump Sum or SIP?

  • If you depend on regular monthly savings for your ELSS investments, it makes sense to invest through the systematic investment plan (SIP) route.
  • If you have sufficient funds for your tax saving investments for the year in April itself, you should invest in lump sum, unless you expect the market to be volatile or you expect a correction during the year.
  • If you have the funds to invest but anticipate the market to be volatile, you should not keep your funds in a bank account.
  • One thing investors should always avoid in volatile markets is trying to find the market bottom. Even expert investors fail to time the markets, more often than we would tend to believe. Systematic Investment Plans or Systematic Transfer Plans from debt fund to ELSS are the best way of investments in volatile markets.
  • If you are salaried or have a predictable monthly income, the SIP mode of investment is the right choice for you. If you are a business owner and your income is seasonal, you can opt for lump sum investment or a combination of lump sum and SIP, based on your monthly flow of money.

ELSS Funds to invest in:

1. Aditya Birla Sun Life Tax Relief 96 Fund

This fund has no particular bias towards any market cap size. The emphasis is on quality wherein the fund manager invests in businesses with strong management and the ability to sustain or achieve leadership position over the years.

The fund manager is comfortable taking large positions in his investments with huge allocation, most of which are not a part of the benchmark index.
This adds an element of aggression to the portfolio.

Reliance Taxsaver Fund has following features:

  • Age is more than 10 years old
  • 1 year, 3 year, 5 year and 10 year returns are higher than the benchmark
  • Exit Load is zero
  • Risk is higher compared to the benchmark
  • Lower expense ratio
  • Approx 60% investment is made in large cap
  • Major fund has been allocated to Financial Services and Industrial Manufacturing, followed by Automobile.
Risk Moderately high
Expense Ratio 2.23 %
Fund size 4759 Cr
1 year Return 21.15 %
3 year Return 12.00 %
5 year Return 24.25 %

 

Top Holdings:

Company Sector Cap Size
Honeywell Automation India Ltd. Industrial Manufacturing Mid Cap
Sundaram Clayton Ltd Automobile Mid Cap
Gillette India Ltd Consumer Goods Mid Cap
Reliance Industries Ltd Energy Large Cap
Bayer Cropscience Ltd Fertilisers & Pesticides Mid Cap

2. DSP Blackrock Tax Saver Fund

This fund has a very good track record, having outperformed its category average in seven of the past nine calendar years. It has invested heavily in large cap, where its exposure is higher compared to peers in the same category. The fund’s portfolio is heavily diversified but has maintained a healthy exposure in its top picks.

With a healthy risk-reward profile, this fund is a very good pick for conservative investors looking for a tax saving fund.

DSP BlackRock Fund has following features:

  • Age is more than 10 years old
  • 3 year, 5 year and 10 year returns are better than the benchmark
  • Exit Load is zero
  • Risk is higher compared to the benchmark
  • 1 year returns are lower than the benchmark
  • More than 70% investment is in large cap fund
  • Major fund has been allocated in Financial services, followed by Energy
Risk High
Expense Ratio 2.26 %
Fund size 10758 Cr
1 year Return 9.25 %
3 year Return 6.79 %
5 year Return 22.96 %

 

Top Holdings:

Company Sector Cap Size
HDFC Bank Ltd. Financial Services Large Cap
ICICI Bank Ltd Financial Services Large Cap
State Bank of India Financial Services Large Cap
Tata Steel Ltd Metals Large Cap
Larsen & Toubro Ltd Construction Large Cap

 

3. Reliance Tax Saver Fund

This is an aggressive fund in the tax-saver schemes, taking on greater exposure to small- and mid-caps compared to its competitor schemes. It favours taking concentrated bets in its top scrips, and is also confident in deviating substantially from its benchmark index in both sector and scrip positions.

The scheme’s drift approach allows it to produce higher alpha than many competitor schemes. However, this also results in much greater volatility in performance, with the scheme doing far better in a rising market than during a flat or bear market. The fund is suitable for investors confident with taking on higher risk in search of greater return during a market rally.

The fund manager follows a bottoms scrip picking approach to his portfolio and identifies stocks at attractive valuations with high growth potential. About half of the portfolio holding of Reliance Tax Saver Fund is invested in small and midcap stocks. The fund manager has reduced his exposure to midcaps and invested more in large caps.

The features of Reliance Tax Saver Fund are:

  • Age is more than 10 years old
  • It has a lower expense ratio
  • 5 year and 10 year returns are higher than the benchmark
  • Risk is higher compared to the benchmark
  • 1 year and 3 year returns are lower than the benchmark
Risk Moderately high
Expense Ratio 2.26 %
Fund size 3834 Cr
1 year Return 12.09 %
3 year Return 11.73 %
5 year Return 21.94 %

 

Top Holdings:

Company Sector Cap Size
Tata Motors Ltd Automobile Large Cap
ICICI Bank Ltd Financial Services Large Cap
State Bank of India Financial Services Large Cap
Tata Steel Ltd Metals Large Cap
Ambuja Cements Ltd Cements Large Cap

 

4. IDFC Tax Advantage Fund

This is an ELSS launched on December 28, 2008. It is a fund with moderately high risk and has given a return of 20.95 % since its launch. The scheme seeks to build a diversified portfolio comprising of stocks of companies with strong fundamentals that are available at reasonable valuations.

Few features of IDFC Tax Advantage Fund are:

  • The fund has consistently outperformed its benchmark S&P BSE 100 since its launch.
  • The top portfolio holdings of the fund include KEC International Ltd., HDFC Bank Ltd., Future Retail Ltd., ICICI Bank Ltd., Minda Industries Ltd., Maruti Suzuki India Ltd., VRL Logistics Ltd., CBLO (CCIL) etc.
  • 1 year, 3 year and 5 year returns are higher than the benchmark
  • Risk is higher compared to the benchmark
  • Risk is moderately high and the expense ratio is 2.44%
Risk Moderately high
Expense Ratio 2.26 %
Fund size 897 Cr
1 year Return 24.77 %
3 year Return 12.13 %
5 year Return 23.02 %

 

Top Holdings:

Company Sector Cap Size
HDFC Bank Ltd Financial Services Large Cap
ICICI Bank Ltd Financial Services Large Cap
Future Retail Ltd Consumer Goods Mid Cap
Infosys Ltd IT Large Cap
MRF Ltd Automobile Large Cap

 

5. HDFC Tax Saver Fund

This scheme’s return has got better over the years after a stretch of uneven performance pulled down its otherwise healthy long-term track record. The fund manager is comfortable in taking large positions in his top picks, despite having a good diversified portfolio.

Typical to the HDFC’s investing style, this scheme continues to back its high-conviction picks and sectoral bets which only recently has this yielded some result. The fund’s portfolio is tilted towards large cap stocks as relative to many of its peers.

Few features of HDFC Taxsaver Fund are:

·      Age is more than 10 years

·      5 Year and 10 Year returns are higher than the benchmark

·      1 Year and 3 Year returns are lower than the benchmark

·      Risk is higher compared to the benchmark

·      Risk-adjusted returns are lower compared to the category

Risk High
Expense Ratio 1.97 %
Fund size 7397 Cr
1 year Return 8.21 %
3 year Return 7.49 %
5 year Return 18.21 %

 

Top Holdings:

Company Sector Cap Size
HDFC Bank Ltd Financial Services Large Cap
ICICI Bank Ltd Financial Services Large Cap
State Bank of India Ltd Financial Services Large Cap
NTPC Ltd Energy Large Cap
Reliance Industries Ltd Energy Large Cap

Conclusion:

The guidelines for investing in an ELSS fund via Lumpsum or Systematic Investment Plan have been mentioned above. Accordingly, an investor can plan his investments and invest in any of the few popular funds mentioned.

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.