IIFL Mutual Fund has launched the IIFL ELSS Nifty 50 Tax Saver Index Fund, dubbed India’s first tax saver index fund, which seeks to replicate the large-cap Nifty 50 Index. This open-ended passive equity-linked savings scheme comes with a three-year lock-in and income tax benefits.
The new fund offer (NFO) will run from Dec 1-21, 2022, and according to the fund house, the fund will re-open for subscription and redemption on an ongoing basis from Jan 2, 2023.
The scheme, managed by fund manager Parijat Garg, promises a double advantage of tax saving under 80C and diversified exposure to equity markets.
Other key benefits of the fund include its low cost as it is a passive fund. The expense ratio of most actively-managed funds typically tends to be higher.
What Is An ELSS Mutual Fund?
Investments in a tax-saving mutual fund, popularly called equity-linked saving schemes (ELSS), have a mandatory lock-in of three years, meaning you can't exit the plan in that period.
It becomes more painful if you fail to select an ELSS winner. It is probably something many investors might be itching to do in the current market scenario, with the indices ticking at their all-time highs, but their ELSS investments may not be doing well.
This is because not all ELSS schemes perform uniformly in the market. Their performance relies on the underlying stocks in the portfolio. Different funds are managed differently, so there is a difference in returns. If you look at the last one-year returns, the best-performing fund delivered 17.21 percent while the worst-performing fund delivered -9 percent. The situation is not very different from their three-year performance.
The best one has given a 41 per cent compounded annual growth rate (CAGR), while the bottom performer gave merely 9.36 per cent.
If you are in the same situation and have laggards in your portfolio and are unable to decide which one to choose, IIFL mutual fund has come up with a solution. If you are willing to go for broader market returns instead of market-beating returns, the IIFL ELSS Nifty 50 Tax Saver Index Fund will come in handy. It is the first passively managed ELSS fund in India.
IIFL ELSS Nifty 50 Tax Saver Index Fund
Commenting on the scheme, in a press release, fund manager Garg said, “The Nifty 50 accounts for about 50 per cent of India’s market cap. Exposure to the Nifty companies through a passive fund is an opportunity for investors to harness the growth potential of equities, reduce tax outgo, lower the cost of investing, and gain diversified exposure.”
Due to its passive approach, Garg said, the “fund eliminates the selection and behavioral biases that impact investment decision-making.”
The Indian equity market has demonstrated formidable resilience against domestic and global headwinds. Hence, for investors, one of the ways to leverage the India growth opportunity would be a passive investment with tax-saving benefits.
Investment Objective
The scheme aims to invest in the Nifty 50 Index stocks in the same proportion as in the index to achieve returns identical to the Nifty 50 Index, subject to tracking error, while offering tax deduction under section 80C of the Income-tax Act, 1961. The fund also “seeks to distribute income periodically depending on the distributable surplus”.
