IIFL has launched a tax saver index fund (passive ELSS fund). We have received several messages from readers wanting to know if they can invest in this.
We are disappointed to receive such emails (some from those claiming they are our long term readers). Getting enticed by shiny objects is a huge investment mistake.
Whether the tax saver fund is from IIFL or any other AMC, it is a new index fund. What is the hurry to invest in it? Let the fund age a couple of years. Let us check its tracking error and tracking difference (fund return minus index return) and evaluate if it is worth investing in. Your salaries will hopefully increase by this time, and you do not need ELSS funds. Better still, the government eliminates all 80C options, or you simplify your life and choose the new tax regime!
Now let us fast forward 3-4 years in the future, and all AMCs have come up with their tax-saver index funds (assuming 80C still exists). Should you invest in such funds when at least some have a “history”?
Young earners are better off choosing the new tax regime, getting rid of all 80C nonsense, focusing on asset allocation, and investing more and more.
For those not investing enough in equity and hell-bent on using the old tax regime, a tax-saver index fund is useful to the extent of Rs. 1.5 lakhs.
In summary, the launch of tax saver index funds does not excite us in any way. There is no reason to rush and buy these funds as their tracking efficiency is unknown (funds with small AUM can struggle to keep pace with the index).
Only young earners whose EPS or NPS contributions are well below Rs. 1.5 lakhs can consider these funds, but even they are better off choosing the new tax regime!
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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