If you want to invest for tax-saving purposes and are new to equity funds, less risky, large-cap funds such as DSP tax saver will suit your needs.
If you want to invest for tax-saving purposes and are new to equity funds, less risky, large-cap funds such as DSP tax saver will suit your needs. The ability to absorb well while being fully invested in equities at all times and superior returns to relatively low risk are the characteristics that make this fund a stable initial tax-saving fund. The fund has delivered average annual returns of 15.6 percent over the past three years. That's almost five percentage points higher than the ELSS group over its Nifty 500 benchmark and around three percentage points more.
Investment Philosophy
The DSP Tax Saver Fund invests in stocks of companies that show sustainable business practices, efficiency in activities, efficiency in capital allocation, and other efficiencies in management. The fund follows an investment style of growth, focusing more on the future performance potential of the stock rather than its current market value. The fund employs a combination of bottom-up and top-down analysis when picking stocks.
Suitability in this scheme
DSP Tax Saver is a tax-saving fund wherever it goes. It has no barriers to market-cap, nor does it have any specific strategy. It thrives by identifying opportunities at the right time. It is not much different in that regard and in terms of its portfolio from its sister fund DSP opportunities (which is a regular diversified equity fund). Nevertheless, DSP tax savers have been mostly large-cap biased.
If you are looking for low-volatility tax-saving options, this fund is suitable. If your risk appetite is small, then a tax shield may be a better option for Franklin India as it is based on large-caps. There is no restriction on the market cap of DSP Tax Saver.
You will get a deduction under Section 80C of the Income Tax Act for investments up to Rs 1.5 lakh per year in this fund. 1.5 lakh for all other tax-saving items is part of the allowable deduction for the umbrella. Ideally, the investment is made through the planned investment plan (SIP) method to avoid market mistiming.
Performance of the scheme
Over the years, DSP Tax Saver has continuously improved its record of deliveries. When its 1-year returns rolled daily over the past three years, it surpassed its benchmark, the Nifty 500, by 96%. Over the same period, on 9% of occasions, the fund had negative 1-year returns. The benchmark gave negative 1-year returns 20% of the time.
A similar exercise compared to peers (1-year returns regularly rolled for three years) showed that the fund group averaged 73 percent of the time. While there are funds from Aditya Birla or Tata houses that have strengthened this record, this was mainly possible as those peers had a mid-cap exposure (around 50%).
On the other hand, DSP Tax Saver had an average of 70 percent large-cap holding in the last two years. In other words, the total returns were not as high as some peers as higher risks were not taken. The fund managed superior performance with lower risk compared to the same peers.
Why is only the DSP Tax Saver Fund beneficial for you to invest in?
Although the lock-in period is three years, we recommend that investors stay invested for a minimum of 5 years. Invest in ELSS if you are willing to remain invested for a long time, like any equity mutual fund.
Is there any tax associated with funds?
Long-term capital gains (LTCG) tax applies to ELSS funds as the lock-in period is three years. For-profits above Rs 1 lakh, a 10 percent tax is levied on the profit.
Conclusion: The DSP Tax Saver Fund is ideally suited for medium to long term goals. Invest in this scheme to optimize your returns in the future. The fund accepts contributions by both lump sum and SIP. Investors looking for a diversified option may consider investing in this fund. To give the best returns, keep a minimum investment period of 5 years in this fund. Do not look at the returns for this scheme in a short time. Gains in the short term can be manipulated.
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