Equity investments and Tax saving - Tick both boxes with ELSS funds

With domestic equity markets down from their 2024 highs, now can be an opportune time for investors to buy into one of the growing economy in the world at reasonable valuations. And with the final quarter of financial year 2024-25 here, minimizing one’s tax out-go is on everyone’s mind. An Equity Linked Savings Scheme (ELSS) can help tick both these boxes.

An ELSS is an equity-oriented mutual fund scheme, investments in which are eligible for tax deductions under Section 80C of the Income Tax Act.

With its underlying investment being equity, ELSS funds have a track record of generating better returns compared to other debt-based tax-saving investments such as fixed deposits, post office schemes and Public Provident fund because of its equity investments. ELSS funds have the shortest lock-in period of 3 years compared to other options under 80C deduction. Better return potential and high liquidity makes ELSS funds a popular tax-saving investment with Assets under management for this category standing at 2.46 trillion as of December 2024 (Source: AMFI).

At Quantum, our investment philosophy prioritizes valuations, governance and liquidity so Quantum’s equity funds have better risk management processes to manage market risks and optimize returns. Quantum’s proprietary integrity filter removes companies with unethical practices, safeguarding the funds from negative market reaction when the ills come to the fore. Owning companies with good governance practices bodes well for Quantum funds as such companies benefit from good public reputation and customer loyalty, attract talented workforce and investments and do not face any regulatory issues. Lastly, investing in companies with an average daily turnover of at least $ 1 million based on the past year’s liquidity, the fund ensures that it can exit a stock at reasonable prices during periods of market stress.

The Quantum ELSS Tax Saver Fund follows value style of investing while complying to the norms of ELSS funds. The current scenario of high interest rates generally bodes well for value style of investing. Given the premium valuations in the mid-cap and small-cap space, the fund’s portfolio is heavily tilted towards large caps where the extent of overvaluation is limited based on historic trading range. The fund aims to control headline risks by investing in companies with good governance practices and reasonable market liquidity. The risk metrics of the fund can offer insights into the effectiveness of risk management practices of a fund. The following table indicates the risk metrics of Quantum ELSS Tax Saver Fund relative to its’s benchmark.

Data Compilation: Quantum; Data for 3-year period ending December 2024.
Past Performance may or may not be sustained in the Future. This table is to be read with complete performance provided in the article below.

For the 3 years ending December 2024, the Quantum ELSS Tax Saver fund’s standard deviation, which measures how much its performance varies from its average performance, is lower compared to the BSE 500 Total Return Index. The lower standard deviation means lower volatility. The fund’s Sharpe ratio which measures the excess return over the risk-free rate that the fund generates per unit of risk assumed is higher than the BSE 500 Total Return Index for the same period. Lower volatility is also indicated by a ratio called beta which indicates the fund's sensitivity to market movements. A beta less than 1 indicates the fund may not fluctuate as much as the market. Quantum ELSS Tax Saver Fund has a beta of 0.85.

In addition to prudent risk management, the Quantum ELSS Tax Saver fund’s bottom-up stock selection process, low portfolio turnover and disciplined research and investment process has resulted in better risk adjusted returns.

In case of ELSS funds, saving tax is not the only consideration, with their 3-year lock in period, ELSS funds encourage longer term equity investing - the equity exposure has potential to generate market linked returns and the lock in period acts as a deterrent for investors to exit in times of volatility.

This is good for investor’s long term financial health, making ELSS Funds a sensible choice for tax saving.

# BSE 500 TRI ## BSE 200 TRI ### BSE Sensex TRI
Past performance may or may not be sustained in the future.
Different Plans shall have a different expense structure.
Returns are calculated on the basis of Compounded Annualized Growth Rate(CAGR).
#with effect from February 01, 2020 benchmark has been changed from BSE Sensex TRI to BSE 200 TRI.
Click here for other schemes managed by George Thomas & Christy Mathai Click here.

Name of the Scheme	This product is suitable for investors who are seeking*	Risk-o-meter of Scheme	Risk-o-meter of Tier I Benchmark	Risk-o-meter of Tier II Benchmark
Quantum ELSS Tax Saver Fund An Open Ended Equity Linked Saving Scheme with a Statutory Lock in of 3 years and Tax Benefit. Tier I Benchmark : BSE 500 TRI | Tier II Benchmark : BSE 200 TRI	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in BSE 200 index and to save tax u/s 80 C of the Income Tax Act. Investments in this product are subject to lock in period of 3 years.

^*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Above article is authored by Quantum.

View All