Is there any ELSS with low expense ratio of less than 1.5 per cent, which is also reasonably safe as opposed to being run by a fly-by-night operator?
- Kartik Vaddadi
First let us clarify your stand on the 'fly-by-night operator'. All mutual funds in India have to be registered with the market regulator - the Securities and Exchange Board of India (SEBI). There are stringent regulations that promoters have to fulfil before they set up a mutual fund. SEBI strictly governs the functioning of the fund industry. The holdings of mutual funds are kept with the custodian who is responsible for their safe keeping. So if you invest in a mutual fund registered with SEBI, you can be sure that it is not going to run away with your money.
Currently, there are three ELSS funds that have an expense ratio of less than 1.5 per cent. LICMF Tax Plan is a two-star rated fund, Tata Tax Saving is three-star rated and Edelweiss ELSS is a new fund that was launched in December 2008.
From the performance point of view, there are better tax saving funds in the market with proven track records. But they do not fit in your 1.5 per cent expense ratio limit. It is always better to compromise on expense ratio rather than compromising on good funds. Also, the maximum expense ratio a fund can charge is 2.5 per cent which is not too high from your expectation of 1.5 per cent.