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Swelling Size

ELSS have emerged as a compelling option as a tax saving instrument after the exemption limit for them was increased from Rs 10,000 to Rs 1 lakh from April 2005

ELSS have emerged as a compelling option as a tax saving instrument. The increase in exemption limit to Rs 1-lakh was good enough a trigger for the investors to flock towards the tax-planning funds and for the AMCs to launch these funds. In December 2006 alone, there were three funds that were launched viz. DSPML Tax Saver, Lotus India Tax Plan and HSBC Tax Saver Equity.

Some funds like Birla Sun Life Tax Relief '96 grew by 14 times in just one year. The fund, which was just managing assets worth Rs 21 crore in March 31, 2006 is now a Rs 309-crore fund. Birla Sun Life had acquired this fund from the erstwhile Alliance Mutual Fund in September 2005.

Funds like Sundaram Tax Saver, Magnum Taxgain, HDFC Tax Saver have also more than doubled in size in a year. The assets under management of tax planning funds, which were Rs 684 crore in March 2005, saw their assets zoom to Rs 5,089 crore in March 2006. Further in March 2007, the AUMs of these funds increased to Rs 8,417 crore, a rise of 65 per cent in a year.

No wonder then that ELSS funds have become a formidable alternative for investors to do their tax planning

The tax planning funds compare well with the diversified equity funds. While the former delivered returns of 51.76 per cent in 2005 and 30 per cent in 2006, the latter generated 46.72 per cent in 2005 and 34 per cent in 2006.

Magnum Tax Gain has become the largest ELSS fund in the country with an asset size of Rs 1,664 crore. The fund which until two years ago was just above Rs 80 crore saw its assets size swell to Rs 705 crore in 2006. The five-star fund returned 96 per cent in 2005 and 45 per cent in 2006. The fund's performance has propelled it into the number one slot in the ELSS category since 2004.

In terms of asset size, Magnum is followed by Reliance Tax Saver (launched in August 2005), HDFC Tax Saver (Rs 897.28 crore) and Fidelity Tax Advantage (Rs 707.74 crore). HDFC Tax Saver, which had ranked among the five star funds for quite some time, has slipped in its rankings. The fund, which was ranked number two in the tax-planning category in 2004 and 2005, stood at the tenth rank in 2006 among the 23 tax-planning funds.
Fidelity Tax Advantage, launched in January 2006, has also done well. Its one-year returns (as on April 12, 2007) stood at 13.74 per cent, much more than the category's average of 1.62 per cent.