Equity Linked Savings Schemes (ELSSs), which allow investors to reduce their tax liability and simultaneously gain from stock markets, saw net inflows fall in December 2016 after rising consistently in the previous four months. The net inflows stood at Rs 907 crore in December 2016, after reaching a high of Rs 1,011 crore in November 2016 from Rs 706 crore in October 2016. In September 2016, the net inflows stood at Rs 495 crore.
The data for January 2017 is yet to be released by industry body, Association of Mutual Funds in India (Amfi).
Investments in ELSSs qualify for deduction under section 80C of the Income Tax Act subject to a maximum of Rs 1.50 lakh per annum and the amount is lock-in for three years.
"ELSS funds are one of the best avenues to save tax under Section 80C. This is because along with the tax deduction, the investor also gets the potential upside of investing in the equity markets. Also, no tax is levied on the long-term capital gains from these funds. Moreover, compared to other tax saving options, ELSS has the shortest lock-in period of three years," according to an update on online investment platform FundsIndia.
On the flip side, the investments in ELSSs do not have assured returns and are prone to stock market risks, unlike similar investment options such as PPF and NSC.
With the financial year coming to an end in about 55 days, investors would be keen to plan and invest so as to reduce their tax liability to the minimum. In the context of falling interest rates on small savings instruments such as PPF, NSC and related options, the inflows into ELSSs could pick-up momentum in the coming months.
Further, the government resorted to a practice to reset interest rates on these small savings instruments last year, benchmarking them to yields on government securities. Given that the yields have been gradually declining, a corresponding fall in interest rates on small savings instruments is an inevitable outcome.
With effect from October 1, 2016, the interest rate on PPF is eight percent per annum, compounded yearly. The minimum deposit per year is Rs 500 and the maximum Rs 1,50,000. The tenure is 15 years and the interest received is tax-free.
In case of National Savings Certificates (NSC VIII Issue), the interest rate is eight percent per annum. According to the rate of interest effective from October 1, 2016, the maturity value of a certificate of Rs 100 purchased on or after October 1, 2016 is Rs 146.93 after five years.
SRK's latest movie makes him 'Raees'
As an aside, you may be wondering how much money Shah Rukh Khan has made with his co-production Raees? It's Rs 250 crore in 12 days' collection at the box office worldwide. Let us look at the returns on this movie starring Pakistani actress Mahira Khan (female lead) and Nawazuddin Siddiqui, besides SRK.
Shooting commenced in early 2015
Shooting completed by April, 2016
Film budget (reportedly): Rs 90 crore* (including expenditure on ads and promotion)
Box office collection: Rs 250 crore (worldwide, gross). The movie is still being shown in theatres.
Returns: ~177% in less than two years (tentative)
Raees has been co-produced by SRK's production house Red Chillies Entertainment and Excel Entertainment.
*: Box Office India estimates it at Rs 127 crore.