PGIM India ELSS Tax Saver Fund: A good choice for tax saving investments

With just over a month left for the end of this financial year, you should ensure that you avail the deductions allowed under the Old Tax Regime, if applicable to you. Section 80C of Income Tax Act allows investors to claim deductions from their gross taxable income by investing in certain eligible tax savings schemes. The maximum deduction in one financial year that you can claim u/s 80C is Rs 1,50,000. For investors in the highest tax bracket, that implies savings of up to Rs 46,800 in taxes.

Old versus New Tax Regime

The New Tax Regime has lower tax rates for different income slabs compared to the Old Tax Regime, albeit without deductions that are allowed under the Old Tax Regime. Under the Old Tax Regime, you can claim deductions for certain investments or expenses as specified in various sections of the Income Tax Act, 1961 e.g. Sections 80C (e.g. ELSS), 80CCD (NPS), 80D (Health Insurance), 24 (Home Loan interest payments) etc. If you are able to claim some or all of these deductions, the Old Tax Regime may be more beneficial than the New Tax Regime. You may consult your tax advisor to understand which tax regime is more beneficial in your financial situation to make informed decisions.

Tax Savings options under section 80C

Tax saving investment options u/s 80C can be market linked or non-market linked. Public Provident Funds (PPF), National Savings Certificates (NSC), tax saver term deposits etc are non market linked investments. Mutual Fund Equity Linked Savings Schemes (ELSS) and Unit Linked Insurance Plans (ULIPs) are market linked investments.

Why invest in ELSS for tax savings?

• Government small savings like PPF have been popular 80C investment options for many investors, but small savings scheme interest rates have been declining secularly over the long term.
  
  

  

  Source: Advisorkhoj.com



• Historical data shows that equity, as an asset class, has given superior returns in the long term. The chart below shows the growth of Rs 1 lakh investment in Nifty 50 TRI versus PPF over the last 20 years (as on 31^st January 2024).
  
  

  

  Source: NSE, Advisorkhoj.com, as on 31^st January 2024



• The three year lock-in period of ELSS enables fund managers to invest in high conviction stocks for a longer period because of relatively less redemption pressure.


• ELSS is the most liquid investment option u/s 80C. ELSS has lock-in period of three years, whereas minimum lock-in period of other 80C investment options is 5 years.


• ELSS is one of the most tax efficient investment options u/s 80C. Capital gains of up to Rs 1 lakh is tax exempt and taxed at 10% thereafter.

PGIM India ELSS Tax Saver Fund

PGIM India ELSS Tax Saver Fund was launched in December 2015. The fund has given 13.88% returns since inception (as on 31^st January 2024 for Regular Plan, source: Advisorkhoj Research). Vinay Paharia (Equity Portion), Anandha Padmanabhan Anjeneyan (Equity Portion) and Bhupesh Kalyani (Debt Portion) arethe fund managers of this scheme.

Performance

The chart below shows the growth of Rs 10,000 invested in PGIM India ELSS Tax Saver Fund since inception. The value of your investment would have grown to Rs 29,310 as on 31st January 2024 at CAGR of 14.1%.

Source: Advisorkhoj.com, as on 31^st January 2024

Volatility of returns reduces over long investment tenures

Many investors prefer risk-free investments over equities since equities are volatile. However, historical data shows that probability of loss decreases over long investment tenures. The chart below shows the 5 year rolling returns of PGIM India ELSS Tax Saver Fund versus the ELSS category average since the inception of the scheme. You can see that the fund never gave negative returns over 5 year investment tenures across all market conditions. You can see in the chart that the minimum return of the fund over 5 year tenure was around 10%; this is significantly higher than interest rates of 80C Government Small Savings Schemes.

Source: Advisorkhoj.com, as on 31^st January 2024

Investment Strategy

Current Portfolio Positioning

Source: Advisorkhoj.com, PGIM MF Factsheet as on 31^st January 2024

SIP – Effectiveand convenient way of investing in PGIM India ELSS Tax SaverFund

The chart below shows the growth of Rs 10,000 monthly SIP in PGIM India ELSS Tax Saver Fund since the inception of the scheme. Investing in ELSS through SIP not only keeps you disciplined in your tax planning, it can also help you accumulate wealth in the long term through the power of compounding. You can see that with a cumulative investment of Rs 9.8 lakhs, you could have accumulated Rs 18.74 lakhs (as on 31^st January 2024).

Source: Advisorkhoj.com, as on 31^st January 2024

Why you should invest in PGIM India ELSS Tax Saver Fund?

• By investing up to Rs 1.5 lakhs in PGIM India ELSS Tax Saver Fund can enable you tosave tax up to Rs 46,800 u/s 80C.


• The Scheme has a diversified equity portfolio across market capitalizations and is suitable for wealth creation


• The scheme invests in high quality and high growth stocks at reasonable valuations


• The scheme’s mandated three-year lock-in ensures that you do not react to market swings and continue to remain invested

Who should invest in PGIM India ELSS Tax Saver Fund?

• Investors looking for tax savings under section 80C and capital appreciation over long investment horizons


• Investors with high risk appetite


• Investors with minimum 3 years investment tenures


• You can invest either in lump sum or SIP depending on your financial needs

Investors should consult their financial advisor or mutual fund distributors if PGIM India ELSS Tax Saver Fund is suitable for your investment needs.