Among the most appealing choices for saving taxes and at the same time creating wealth are Equity Linked Savings Schemes (ELSS) when it comes to saving taxes and creating wealth at the same time. HDFC ELSS Tax Saver Fund – Growth Option is one such notable fund in this category. Leveraging HDFC Mutual Fund’s reputation, this scheme is designed to provide investors with a combination of tax relief and long-term capital gains through equity investments.
In this article, we will discover what HDFC ELSS Tax Saver Fund Growth option is, how it operates, what are its benefits and risks, its performance, and if it is good enough for your investment portfolio.
What is the HDFC ELSS Tax Saver Fund?
The HDFC ELSS Tax Saver Fund is an open-ended equity-linked savings scheme that features a lock-in period of three years. Similar to other ELSS funds, it provides tax benefits under Section 80C of the Income Tax Act of 1961, allowing investors to reduce their taxable income by claiming deductions of up to ₹1.5 lakh each financial year.
Choosing the “Growth” option for this fund means that your earnings are reinvested, facilitating compounding over time rather than receiving periodic dividends. This makes it especially advantageous for long-term investors aiming to accumulate wealth.
Investment Strategy:
The fund mainly invests in an investment universe of a diversified portfolio of equity and equity-related instruments. The fund has a multi-cap approach, which means it distributes investments among large-cap, mid-cap, and small-cap stocks depending on market conditions and opportunities.
The investment team seeks to select fundamentally robust companies with decent business models, sound corporate governance, and a potential for growth. The portfolio generally has an inclination towards financial services, IT, consumer products, and pharma sectors, although the composition could change from time to time.
Key Benefits:
- Tax Savings: The primary advantage of investing in this fund is the tax deduction of up to ₹1.5 lakh under Section 80C, which can lead to a tax saving of up to ₹46,800 per year for individuals in the highest tax bracket.
- Shortest Lock in period among Tax Saving option: Compared to other Section 80C instruments like PPF (15 years), NSC (5 years), and tax-saving FDs (5 years), ELSS funds have the shortest lock-in period of 3 years.
- Potential for High returns: Since the fund is equity-oriented, it has the potential to generate higher returns compared to traditional tax-saving options. Over the long term, equity has historically outperformed fixed-income investments.
- Compounding Growth: Choosing the growth option means that any gains earned are reinvested, leading to compounding over the investment period. This is beneficial for long-term wealth creation.
- Fund Management: The fund is managed by experienced professionals at HDFC Mutual Fund who conduct rigorous research and analysis to identify growth opportunities.
Risk To consider:
While the fund offers high return potential, it is not without risks. As an equity-linked fund, it is subject to market volatility. Returns are not guaranteed and may fluctuate based on broader economic conditions, interest rate movements, or sector-specific developments.
Moreover, investors must be ready to stay invested for at least three years, given the lock-in period. Though this aligns well with long-term investment goals, it limits liquidity.
Historical performance:
As of the last reported data, the HDFC ELSS Tax Saver Fund – Growth option has delivered competitive returns over different time horizons. For instance:
- 1-Year Return: Approx. 25%
- 3-Year CAGR: Around 18%
- 5-Year CAGR: Close to 15%
(Note: Returns are illustrative and subject to market changes. Always check the latest NAV and performance before investing.)
Who Should Invest:
The Fund is ideal for:
- Salaried individuals and professionals seeking tax-saving options under Section 80C.
- First-time equity investors with a long-term horizon.
- Investors comfortable with moderate to high risk.
- Those looking for wealth creation along with tax benefits.
However, conservative investors or those needing short-term liquidity might want to consider other options.
How to Invest:
You can invest tax Saver Fund Via:
- Lump Sum: A one-time investment, especially toward the end of the financial year for quick tax savings.
- SIP(Systemic Investment Plan): Monthly investments throughout the year, which averages out market volatility and instills financial discipline.
Final Thoughts:
The HDFC ELSS Tax Saver Fund – Growth option is a smart choice for investors aiming to save taxes and grow wealth over the long term. While it carries equity-related risks, its consistent performance and the benefits of compounding make it a compelling option in the ELSS category. As always, investors should assess their risk tolerance, financial goals, and consult with a financial advisor before making investment decisions.
