Why save only 45000 when you invest in ELSS, Save 51000 instead!

Thursday, December 15, 2016 Swati Aggarwal 4 Comments


Investors are always interested in finding out about the top ELSS funds to invest in. However one low-hanging fruit is to invest in direct plans of ELSS funds which can give a guaranteed increase in returns.

http://bit.ly/elsssignup

 

How you can save taxes with ELSS funds


First a quick recap of how you can save upto Rs 45,000 by investing in ELSS and other 80C eligible instruments. Section 80C of the Income tax act allows you to claim a deduction of up to 1.5 lakh in your taxable income if you invest in eligible instruments. For those in the highest tax bracket of 30%, this works out to be saving of 45,000 in your tax bill. Here is the calculation:



Even for those in the lower tax brackets of 10% and 20%, savings turns out to be 15000 and 30000 respectively.
However did you know that if you are investing in ELSS funds, you do not need to be satisfied with just a saving of 45000, you can save 6000 more to take your total savings to 51000. Repeating the above calculation in reverse, an additional saving of 6000 is equivalent to having  80C limit of 1.7 lakhs for somebody in the 30% tax bracket. 


Save more by investing in direct plans of ELSS funds


So how to save an additional 6000 Rs? Simple. Buy only direct plans of ELSS funds. Every mutual fund has two plans: regular and direct. These plans are same in every respect but in regular plans you have to pay commissions every year while direct plans are 0-commission. Since ELSS funds have a lock-in of 3 years, if you choose to buy a regular ELSS fund today you will be paying commissions for 3 years.

Read more: Earn higher returns by investing in direct plans of mutual funds

ORO looked at the performance of all 33 ELSS funds which existed 3 years back on 1st December 2013. Our calculations show that if you had invested your entire 80C limit of Rs 1.5 lakhs in direct plan instead of the regular plan, on an average you would have saved a total of Rs 6000 in commissions.



Also if you look at the ELSS fund industry, then nearly 85% of the money is managed by just 10 funds (as of Oct 2016). In the table below we show the commissions that you could have saved in each of these funds by going direct. The largest ELSS fund is the Axis Long Term Equity Fund which alone has 23% of the total ELSS money (as of Oct 2016). Investors in Axis could have saved 11000 in commissions by just choosing the direct plan.

 


Stop leaving Money on the Table


So are there any disadvantages of going direct? Some people say that you lose out on the valuable “advice” which the commission-earning middleman provides you. But given the high commissions involved in ELSS funds, you need to be particularly careful about mis-selling.


You are much better off: 1) Doing your own research or 2) Going with a fee-only planner who will advice you on the right ELSS fund to buy for a fee and then get you invested in direct plans.

We at ORO enable investors to buy direct plans of different mutual funds conveniently at one place. We also provide our top picks in ELSS funds (and other categories). You can check our top pick by creating a simple login here.

Start investing in direct plans today and stop leaving your hard earned money on the table.
http://bit.ly/elsssignup


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4 comments:

  1. please send any tax saving schemes

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    Replies
    1. Nitesh,you can invest your money in direct plan of DSP BlackRock Tax Advantage and Sundaram Tax Saver. These are among best schemes in tax saving category.

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  2. You will be paying out very very small amount as commission to agent (read SBI guidelines). Call him take full guidence. Once you are confident go ahead for direct.

    ReplyDelete
  3. Hi Ramesh. As mentioned in the article, based on actual data an investor buying regular ELSS funds would have paid commissions of Rs 6000 on an investment of Rs 1.5lakhs. It is an investor's call whether Rs 6000 is a negligible amount and whether the advisor is adding enough value by selecting ELSS funds to justify this fees.
    FYI, ORO offers this service (of selecting best mutual funds in different categories) for free because we believe that this service alone is not sufficient for people to pay this much.
    For further reference, by paying Rs 6k-11k to a fee-based financial planner (those who don’t get commissions but charge a fee from you) you can get a comprehensive financial plan where they will assess you entire financial situation and suggest an investment plan to achieve your financial goals.
    At ORO, with Rs 10,000 you can buy our platinum plan - which allows you to transact in direct mutual funds worth Rs 1.25cr plus you can get unlimited to our advisory tools plus a quarterly review of your investments with our experts. (Ref: https://www.orowealth.com/plans)

    ReplyDelete