Usually, the ideal time for tax planning is at the beginning of the year; however, if you still haven’t done that, now is the time to look for suitable tax-saving options. Equity Linked Savings Scheme (ELSS) are of special significance over all other mutual fund options because of tax benefits under Section 80C of the Income Tax Act. ELSS has the shortest lock-in period of three years as compared to other government-backed tax-saving avenues available in the market.

The mandatory 3-year lock-in period for ELSS helps you weather stock market volatility, and the balanced portfolio construction reduces downside risk. As a result, many novice investors use ELSS or tax-saving mutual funds as a good entry vehicle to the equity market. Investors looking for ways to reduce their tax obligations for the financial year 2022-2023 may consider investing in an Equity-linked savings scheme (ELSS).

What is an Equity Linked Saving Scheme?

Equity Linked Saving Scheme (ELSS), also known as a tax-saver fund, is an open-ended equity mutual fund scheme that invests primarily in equity-related products. ELSS mutual funds have a 3-year mandatory lock-in term, which is the shortest lock-in period if compared to all other products that are available under Section 80C of the Income Tax Act, 1961.

Samco Mutual Fund, founded by Mr Jimeet Modi, is a new entrant in the mutual fund industry and has added second equity mutual fund scheme in its product basket under the tax saving category. Samco ELSS Tax Saver Fund is an open-ended Equity Linked Saving Scheme with a statutory lock-in of 3 years and tax benefit.

Table 1: Details of Samco ELSS Tax Saver Fund

Type An open-ended Equity Linked Saving Scheme with a statutory lock-in of 3 years and tax benefit. Category Equity Linked Savings Scheme (ELSS)
Investment Objective The investment objective of the scheme is to generate long-term capital appreciation through investments made predominantly in equity and equity-related instruments. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.
Min. Investment Rs 500/- and in multiples of Re 1 thereafter. Additional Purchase Rs 500/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
Entry Load Not Applicable Exit Load Nil
Fund Manager Mrs Nirali Bhansali Benchmark Index Nifty 500 Index TRI
Issue Opens: November 15, 2022 Issue Closes: December 16, 2022

(Source: Scheme Information Document)  

What will be the investment strategy for Samco ELSS Tax Saver Fund?

Samco ELSS Tax Saver Fund aims to generate long-term capital appreciation by investing in equity and equity-related instruments. The scheme would invest in companies based on various criteria, including sound professional management, track record, industry scenario, growth prospects, liquidity of the securities, etc.

The scheme follows a 3E investment strategy that endeavours to invest only in Efficient Stress Tested companies, buy at an Efficient price, maintain Efficient portfolio turnover, and reduce dealing & impact costs. Samco’s HexaShield stress-tested framework strictly defines and quantifies the definition of a high-quality business.

The in-house proprietary HexaShield framework is built to guide the stock selection. The portfolios will be built utilising a bottom-up stock selection process, focusing on the appreciation potential of individual stocks from a fundamental perspective. Within equities, the fund’s strategy will endeavour to have a predominantly higher allocation to mid and small-cap companies selected using above stated process. The scheme will invest in about 30-40 scripts to ensure adequate diversification and reduce risks.

How will the scheme allocate its assets?

The scheme aims to invest in equity and equity-related securities across a market cap from 80% to 100%. It may also allocate a certain portion of its corpus in debt and money market securities. Investment in debt securities will be guided by credit quality, liquidity, interest rates, and their outlook.

Table 2: Asset Allocation for Samco ELSS Tax Saver Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related instruments 80 100 Very High
Debt and Money Market instruments 0 20 Low to Medium

(Source: Scheme Information Document)  

Who will manage Samco ELSS Tax Saver Fund?

The designated fund manager for this scheme will be Mrs Nirali Bhansali. She holds B.E, and an MBA degree, started as a senior analyst at Samco Securities Ltd. and has been the Head of Equity Research. She has over 8 years of work experience, with more than 6 years spanning capital markets and investment research. She has been instrumental in preparing diversified long-term baskets of stocks for the Stock Basket product by deep-diving into the business models and number-crunching nitty-gritty of varied Indian companies. At Samco Securities Ltd., Mrs Bhansali currently manages Samco Flexi Cap Fund.

Should you invest in Samco ELSS Tax Saver Fund?

Samco ELSS Tax Saver Fund aims to invest in equity and equity-related instruments and hence, has the potential to generate higher returns as compared to other tax-saving investment options like PPF, debt funds, etc.

ELSS funds are a unique type of equity mutual funds that qualify for a tax deduction. You can claim up to Rs 1.5 Lac as a deduction u/s 80C of the Income-Tax Act. Unlike equity mutual funds, ELSS funds have a lock-in period of 3 years. The fund will have the flexibility to invest across the market capitalisation spectrum and has a statutory lock-in of 3 years with tax benefit. The scheme aims to maintain a balanced portfolio construction of pro-cyclical and counter-cyclical stocks that help in reducing macroeconomic shocks. The scheme being actively managed, the fund manager’s ability to construct the portfolio remains to be seen.

However, do note that the scheme invests a majority of its assets in equities, which are highly volatile in nature. The scheme is not free from inherent high market risks, and investors will not be allowed to liquidate their holdings during the lock-in period. In addition, the persistent repercussions of geopolitical tensions, spiralling inflation, and a hike in policy rates to curb inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among others, may impact the portfolio and face intensified volatility in the near term.

Therefore, the scheme is suitable for investors looking for tax-saving options and has an investment horizon of a minimum of 5 years for the fund to grow and realise substantial appreciation of the investment. Ensure that you have a high-risk appetite and that your objectives align with the fund.

This article first appeared on PersonalFN here

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