Tata India Tax Savings Fund’s Rupesh Patel on how to plan ELSS investment

By: | Published: November 24, 2017 2:27 AM

Investment in equity-linked savings scheme should be treated as investment in any diversified equity fund. Rupesh Patel, fund manager, Tata India Tax Savings Fund in an interview with Saikat Neogi says equity is a volatile asset class and it is difficult to time the markets.

Tata India Tax Savings Fund, Rupesh Patel, ELSS investment, equity oriented funds, gst, demonetisation, household assets ELSS is a good option for an investor to take exposure to equities as it comes with an added benefit of tax savings on investments up to a specified limit.

Investment in equity-linked savings scheme should be treated as investment in any diversified equity fund. Rupesh Patel, fund manager, Tata India Tax Savings Fund in an interview with Saikat Neogi says equity is a volatile asset class and it is difficult to time the markets. So, it is advisable for investors to plan their investments systematically and not invest at the spur of the moment. Excerpts:

For the salaried class, equity-linked savings scheme (ELSS) is a big draw to save tax. Do you think the lock-in of three years is an irritant as compared to other equity-oriented funds?

ELSS is a good option for an investor to take exposure to equities as it comes with an added benefit of tax savings on investments up to a specified limit. Although it comes with a lock-in of three years, this should not be seen as an irritant as equity is a long-term asset class and delivers superior return over cycles. To benefit from the compounding effect, one has be patient and remain invested during market ups and downs. Three-year lock in encourages the investor to have a minimum three-year view while investing in ELSS funds which is in the interests of the investors considering the characteristics of the asset class I just explained.

As systematic investment plans (SIPs) are growing, do you see similar traction in ELSS SIPs or do investors still prefer to invest lumpsum amounts in ELSS?

Thanks to various investor education initiatives, investors in general are becoming aware of the benefits of investing in equities through SIP. Accordingly, even in ELSS category, instead of investing through lumpsum, informed investors do prefer to invest through SIP route, which gets reflected in increasing proportion on SIPs in ELSS funds.

Should investments in ELSS be planned instead of investing at the spur of the moment?

Investment in ELSS should be treated as investment in any other diversified equity fund only. For investors having more than three years investment horizon, there is no distinction between a diversified equity fund and a ELSS fund. Equity is a volatile asset class and it is difficult to time the markets. Hence, it is advisable for investors to plan their investments systematically and not invest at the spur of the moment.

As more and more people invest in equities, do you see it as a worrying trend as it can create imbalance in asset allocation?

No doubt we have seen significant inflow from domestic investors into equity markets in recent times. With the outlook on inflation and interest rates remaining benign, share of financial savings should go up. If we look at average household assets, roughly two-thirds of household assets are still held in physical assets such as gold and real estate. Within financial assets, Indian households are significantly underinvested in equities as an asset class not only in absolute terms as compared to other economies but also as compared to our own historical levels. Hence, I do not think that recent flows in equities can potentially create imbalances in asset allocation.

Valuations in Indian equities are not cheap and earnings are just not picking up. How long will it take for earnings to get some momentum?

At current valuations, markets are pricing in strong earnings recovery. We believe that as effects of demonetisation and GST abate, the earnings growth should start improving in coming quarters. With the outlook on global growth improving, and credit costs normalising for the banking sector, the outlook for earnings growth in FY19 and FY20 is positive with consensus estimates in high double digits.

Going forward, do you see moderation in medium-term returns?

Indian equity markets have delive-red very strong returns in the last 12 months with the benchmark Sensex delivering about 26% returns and BSE Midcap Index about 37% returns. Even though the medium- to long-term outlook for markets continues to remain positive, it would be prudent for investors to moderate their return expectations and not extrapolate last one year’s returns. Over a longer period of time, return expectation from equity as an asset class should be in line with the nominal GDP growth.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition