A STUDY OF GROWTH ORIENTED TAX SAVING SCHEMES OF SELECT INDIAN MUTUAL FUND COMPANIES

Headnote

ABSTRACT

Section 80C of the Indian Income Tax Act, 1961 allows deduction of up to Rs 1,50,000. Tax saving schemes of Indian mutual funds, popularly known as Equity Linked Saving Schemes (ElSS) qualify for valid tax saving instrument under Section 80C.However, investment in ELSS is fraught with risk as the returns are not guaranteed. The fund returns depend on various other performance indicators. The present study analyses the relation between ELSS funds' return with performance indicators like market return, fund risk, market risk and portfolio risk.

Key words - Tax saving scheme, ELSS, Market return, Net Asset Value.

Introduction

About two decades ago, Government of India permitted mutual fund companies to offer tax saving schemes to encourage retail individual investors' participation in equity markets. These tax saving schemes of mutual funds are popularly known as Equity Linked Savings Scheme (ELSS). Investment up to Rs.1,50,000 made by Indian individuals in ELSS is eligible for deduction under Section 80C of Indian Income Tax Act, 1961. ELSS invests predominantly in equity and equity related securities with an objective of long term capital growth. ELSS is advisable for those individuals who want to create wealth over a long term. ELSS offers dual benefit of tax savings and capital appreciation.

Unlike other tax saving schemes like PPF, EPF, Bank Fixed Deposits, National Savings Certificate (NSC), ELSS has a shorter lock in period of 3 years, which makes it as one of the preferred choices of tax saving schemes. However, investment in ELSS is fraught with risk as the returns are not guaranteed. But the returns can be high as the investment is made in equity and equity related securities.

Review of Literature:

Grinblatt and Titman (1993) launched a new measure for performance of a portfolio. They opined that to measure portfolio holdings, the use of a benchmark portfolio is not required. Their study observed that fund managers would not be able to make superior returns.

Srivastava and Gupta (2010) studied the market returns of benchmark indices and compared with returns of growth option tax saving equity funds. It was suggested that the fund returns outperformed the benchmark market returns.

Namita (2014) examined the relation between fund return and benchmark portfolio market return. The study concluded that fund returns are...