Best Equity Tax Saving Schemes

Equity Linked Saving Schemes (ELSS) are a great way to save taxes as well as invest in stock market and benefit from capital appreciation. Especially for people in the age group 23-35, I believe at least 70% of their savings under 80C should be made under the ELSS schemes. Some of the key features/advantages of an ELSS scheme are:

• Lock-in-period of ELSS is three years and the dividend in the hands of investors is tax-free
• ELSS funds are much more cost-effective than Unit Linked Plans (ULIPs) as direct cost on ELSS funds has vanished and indirect costs like management fees have been capped at 2.5%

Some of the Best ELSS schemes are as follows:

Birla Sun Life tax Relief 96:

• It is a multi-cap fund with a large-cap bias
• One of the oldest ELSS schemes in India and one of the top performing fund schemes in the world
• The portfolio consist of 46 stocks, with Reliance, Infosys, Jindal Steel & Power and LT as its top holdings
• While choosing this fund do act for the growth plan rather than the dividend one.

SBI Magnum Tax gain:

• The fund is predominantly a large-cap biased fund
• Of the 73 stocks, the top five holdings of the fund as on 31.12.2009 are SBI (4.13%), Reliance Industries (4.05%), Larsen & Toubro (3.74%), Jindal Steel & Power (3.67%) and ICICI Bank (3.37%)
• The fund follows an investment style that is a blend of growth and value

Sundaram BNP Paribas Tax Saver:

• It is an 11 year old ELSS scheme with more than 98% of its assets in equity
• Its top five holding consists of TCS, ICICI Bank, Aban Offshore, Cairn India and M&M
• It also offers a blend of growth and value investing.

ICICI Prudential Tax Plan:

• This fund normally follows a growth style of investing and parks its money in stocks without any bias for the
• market cap
• The fund has generated good risk adjusted returns with slightly lower volatility as indicated by a Beta of 0.98 and
• Sharpe Ratio of 0.30
• Top five holdings of the fund as on 31.12.2009 are Cadila Healthcare (5.39%), Infosys Technologies (5.03%),
• Bharti Airtel (4.78%), Zuari Industries (4.55%) and Reliance Infrastructure (4.22%)

Of the many ELSS schemes in the market currently, I believe that these four mentioned are the ones which are best to park the money into. The key reason being there less risk on too many small cap and mid cap stocks along withe there proven historic track record. One should ideally diversity ones tax savings in the varying weights under these schemes and preferably follow and SIP model to invest in them.