I have been reading that diversified equity funds have given a return of over 25% in the last five years. Is that correct or is there any catch on the returns disclosed. Are the returns figure disclosed by fund houses verified by Securities and Exchange Board of India?
—Sushil Mago
Certain categories of equity funds like small & mid cap funds have generated annualized returns on an average of around 23% over the last five years, although the range of returns generated by funds in this category is fairly wide and lies between 1% and 30%.Other equity categories including large cap and flexi-cap funds have generated annualized returns on an average of 13% and 16.6% respectively. Returns for mutual funds are calculated on the basis of the Net Asset Values (or NAVs) of the schemes. SEBI regulations specify the methods to be used for calculation of the NAVs and their audits.
Can I do a monthly SIP of Rs 5,000 in Equity linked savings scheme to save tax?
—Arvind Kumar
Investments in Equity-linked savings scheme (or ELSS) can be made in lumpsum or SIP mode depending on the investor’s choice. A couple of points to be noted about the modes of investment, tax benefits would be available only in the financial year in which the investment is made and only on amount invested in that financial year. Further, since ELSS investments are locked-in for three years, investments made through the SIP mode would result in each SIP getting locked in for a 3-year period starting from the date of respective SIP. Therefore, one should have a minimum investment horizon of three years while considering investments into ELSS funds.
Additionally, the investment amount is deductible from your gross total income under Section 80C of Income Tax Act (up to a limit of R150,000 p.a). Since ELSS are classified as equity schemes for taxation purposes, dividends as well as long-term capital gains are tax free.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India)
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