Dsp Blackrock Tax Saver Fund: A Smart Investment Strategy

DSP Mutual Fund is a leading mutual fund investment company in India. The DSP ELSS Tax Saver Fund is a mutual fund scheme launched by DSP Mutual Fund on 16 December 1996. The fund seeks to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity-related securities of corporates, and to enable investors to avail of deductions from total income as permitted under the income tax act. The fund has consistently higher annualised returns than the category average for the past 1, 3, 5, and 10 years. The minimum SIP investment is set to ₹500, and the minimum lumpsum investment is ₹500.

Tax benefits

The DSP ELSS Tax Saver Fund offers investors the opportunity to avail of tax benefits under Section 80C of the Indian Income Tax laws. This means that investments of up to Rs 1.5 lakh in a financial year in eligible securities such as this fund are exempt from tax.

The fund has a lock-in period of three years, which means that investors cannot withdraw their money before completing three years from the date of investment. This is an important consideration for those seeking to benefit from the tax advantages offered by the fund.

In addition to the tax benefits, the fund seeks to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity-related securities of corporates. It is suitable for investors who are looking to invest money for at least three years and are seeking the additional benefit of income tax savings, along with higher returns expectations.

It is important to note that while the fund offers the potential for higher returns, investors should also be prepared for the possibility of moderate losses in their investments due to the inherent risks associated with equity investments.

Medium to long-term capital appreciation

The fund is suitable for investors who are looking to invest for at least three years and are seeking higher returns along with the additional benefit of income tax savings. It's important to note that there is a three-year lock-in period for this fund, and investors should be prepared for the possibility of moderate losses in their investments.

The DSP ELSS Tax Saver Fund offers both Regular and Direct plans, with the key difference being the commission paid to the broker/distributor. The Direct plan has a lower expense ratio, leading to higher returns for investors. The fund has consistently delivered higher annualised returns than the category average over the past 1, 3, 5, and 10 years.

When investing in the DSP ELSS Tax Saver Fund, it's important to consider the risks involved. The fund has a "Very High Risk" rating according to SEBI's Riskometer. This means that there is a high possibility of negative returns on your investment. However, the fund has a diversified portfolio, with investments in Large Cap, Mid Cap, and Small Cap stocks, which helps to mitigate some of the risks.

To invest in the DSP ELSS Tax Saver Fund, investors can choose between the Growth and Dividend options. The Growth option reflects all profits or losses in the fund's NAV, while the Dividend option may distribute a portion of the profits as dividends, resulting in a lower NAV. It's important to note that investors cannot withdraw their money from this fund before completing three years from the date of investment.

Investment options

DSP Mutual Fund is the leading mutual fund investment company in India. DSP offers a range of investment options, including the DSP ELSS Tax Saver Fund, which seeks to generate medium to long-term capital appreciation. This fund has a diversified portfolio that is mainly made up of equity and equity-related securities of corporates, offering investors a chance to avail of deductions from their total income as permitted by the income tax act.

The DSP ELSS Tax Saver Fund has both Regular and Direct plans, with the main difference being the commission paid to a broker or distributor. Regular funds have a higher expense ratio, while direct funds have a lower expense ratio, which leads to higher returns for investors. The fund has a minimum SIP investment of ₹500 and a minimum lumpsum investment of ₹500.

The DSP ELSS Tax Saver Fund is suitable for investors who are looking to invest money for at least 3 years and are seeking the additional benefit of income tax savings, along with higher returns. However, investors should also be prepared for the possibility of moderate losses in their investments and the 3-year lock-in period.

The fund has consistently higher annualised returns than the category average for the past 1, 3, 5, and 10 years. It also has a lower expense ratio of 0.74% and a higher alpha of 3.55, indicating that it has generated returns higher than the benchmark NIFTY 500 Total Return Index in the last 3 years.

The DSP ELSS Tax Saver Fund's portfolio is largely conservative, with most holdings in Large Cap stocks and debt instruments. As of October 2024, the fund's equity holding was around 96-98%, with 54-55% in Large Cap stocks, 19.8-22.36% in Mid Cap stocks, and 6.17-6.39% in Small Cap stocks. The fund's portfolio turnover ratio was 35%, while the category average was 355.74%.

The fund's performance has been average among its peers, and as of October 2024, the Net Asset Value (NAV) was around ₹141-144. The fund size is ₹17,488.27-17,770.63 Cr, which is 6.86-8.83% of the investment in the category. The expense ratio is 1.62%, which is in line with the 1.83% category average.

Overall, the DSP ELSS Tax Saver Fund offers investors a chance to save taxes under Section 80C of the Indian Income Tax laws, with investments of up to Rs 1.5 lakh in a financial year being exempt from tax. However, investors should be prepared for ups and downs in their investment value and note the 3-year lock-in period for this fund.

Risk factors

Market Risk

The performance of the DSP Blackrock Tax Saver Fund is closely tied to the performance of the stock market. As with any equity-based investment, there is a risk of loss if the market experiences a downturn. The value of the investment can fluctuate, and investors may experience ups and downs in their investment value. It is important to remember that this fund is not suitable for those who need to redeem their investment within five years, as highlighted by one source.

Liquidity Risk

The DSP Blackrock Tax Saver Fund has a lock-in period of three years, which means investors cannot withdraw their money before completing this period from the date of investment. This lack of liquidity should be carefully considered before investing.

Investment Risk

As per SEBI's Riskometer, this fund carries a "Very High Risk" rating. It is important to note that the fund's portfolio is primarily focused on Large Cap stocks and debt instruments, indicating a conservative investment strategy. However, investors should still be prepared for the possibility of moderate losses in their investments.

Expense Ratio Risk

The expense ratio of the DSP Blackrock Tax Saver Fund is 1.62%, which is slightly higher than the category average of 1.83%. The expense ratio represents the annual fees charged by the fund to manage your investment. A higher expense ratio can lead to lower returns for investors, as it reduces the overall profit.

Tax Risk

While the DSP Blackrock Tax Saver Fund offers tax benefits under Section 80C of the Indian Income Tax laws, there are still tax implications to consider. Long-term capital gains tax of 12.5% will be applicable when investors sell their investments after three years, provided their total long-term capital gains exceed 1.25 lakhs in a financial year. It is important to carefully review the tax regulations and consult a financial advisor to understand the full tax implications of investing in this fund.

Returns

The DSP Tax Saver Fund is an Equity Linked Savings Scheme (ELSS) that offers investors a chance to save on taxes while also providing the opportunity for higher returns. Here's a detailed look at the returns you can expect from investing in this fund:

Tax Benefits

The fund offers tax benefits under Section 80C of the Indian Income Tax laws. Investments of up to Rs. 1.5 lakh in a financial year in this fund are exempt from tax. This means you can reduce your taxable income by investing in this fund.

Capital Appreciation

The primary objective of the DSP Tax Saver Fund is to generate medium to long-term capital appreciation. The fund invests in a diversified portfolio of equity and equity-related securities of corporates. By investing in this fund, you can expect gains that beat the inflation rate and returns from fixed-income options over a period of five years or more. However, it's important to note that the value of your investment may fluctuate in the short term.

Historical Performance

The DSP Tax Saver Fund has consistently outperformed its peers and the category average over the years. As of October 2024, the fund's returns are better than the category average. The fund has a very high risk associated with it, according to SEBI's Riskometer.

SIP Returns

Systematic Investment Plans (SIPs) are a popular way to invest in mutual funds. The DSP Tax Saver Fund allows you to invest through the SIP route. By investing a fixed amount at regular intervals, you can benefit from rupee-cost averaging and potentially higher returns over the long term. The fund also offers a Value Averaging Investment Plan (VIP), which is similar to SIP but adjusts the investment amount based on changes in the fund's Net Asset Value (NAV).

Lock-in Period

It's important to note that there is a lock-in period of three years for investments in the DSP Tax Saver Fund. You cannot withdraw your money from the fund before completing this three-year period from the date of investment. This is a standard requirement for all ELSS funds.

Direct vs. Regular Plans

The DSP Tax Saver Fund offers both Regular and Direct plans. The only difference between these plans is the expense ratio. Regular plans have a higher expense ratio because they include the commission paid to a broker or distributor. Direct plans have a lower expense ratio, which leads to higher returns for investors.

Capital Gains Tax

When you sell your investments in the DSP Tax Saver Fund after the three-year lock-in period, long-term capital gains tax will be applicable. The current tax rate is 12.5% if your total long-term capital gains exceed Rs. 1.25 lakh in a financial year. You can claim a deduction on your taxable income under Section 80C for your investments in this fund, with current tax deductions capped at Rs. 1.5 lakh per year.

Frequently asked questions