My question is what makes a mutual fund an ELSS? For example, if today I open a mutual fund, then what would I have to do to the mutual fund to make it an ELSS?
1 Like
ELSS is a sub-category under the Equity scheme mutual fund category. A mutual fund house wanting to create a new ELSS mutual fund will have to mark its category as ELSS when applying for approvals. These categories are defined by SEBI (Refer to Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 and SEBI/HO/IMD/DF3/CIR/P/2017/126 and SEBI/HO/IMD/DF3/CIR/P/2020/228). For reference, sharing the categories below -
Mutual funds are broadly classified into the following categories -
- Equity Schemes
- Debt Schemes
- Hybrid Schemes
- Solution Oriented Schemes
- Other Schemes
These are then further sub-categorized as follows -
1. Equity Schemes
| Sr. No. | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|---|
| 1 | Multi Cap Fund | Minimum investment in equity & equity related instruments- 65% of total assets | Multi Cap Fund- An open ended equity scheme investing across large cap, mid cap, small cap stocks |
| 2 | Large Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 80% of total assets | Large Cap Fund- An open ended equity scheme predominantly investing in large cap stocks |
| 3 | Large & Mid Cap Fund | Minimum investment in equity & equity related instruments of large cap companies- 35% of total assets Minimum investment in equity & equity related instruments of mid cap stocks- 35% of total assets | Large & Mid Cap Fund- An open ended equity scheme investing in both large cap and mid cap stocks |
| 4 | Mid Cap Fund | Minimum investment in equity & equity related instruments of mid cap companies- 65% of total assets | Mid Cap Fund- An open ended equity scheme predominantly investing in mid cap stocks |
| 5 | Small cap Fund | Minimum investment in equity & equity related instruments of small cap companies- 65% of total assets | Small Cap Fund- An open ended equity scheme predominantly investing in small cap stocks |
| 6 | Dividend Yield Fund | Scheme should predominantly invest in dividend yielding stocks. Minimum investment in equity- 65% of total assets | An open ended equity scheme predominantly investing in dividend yielding stocks |
| 7 | Value Fund* | Scheme should follow a value investment strategy. Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme following a value investment strategy |
| Contra Fund* | Scheme should follow a contrarian investment strategy. Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme following contrarian investment strategy | |
| 8 | Focused Fund | A scheme focused on the number of stocks (maximum 30) Minimum investment in equity & equity related instruments - 65% of total assets | An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap) |
| 9 | Sectoral/ Thematic | Minimum investment in equity & equity related instruments of a particular sector/ particular theme- 80% of total assets | An open ended equity scheme investing in sector (mention the sector)/ An open ended equity scheme following theme (mention the theme) |
| 10 | ELSS | Minimum investment in equity & equity related instruments - 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance) | An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit |
| 11 | Flexi Cap Fund | Minimum investment in equity & equity related instruments - 65% of total assets | An open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks |
* Mutual Funds will be permitted to offer either Value fund or Contra fund.
2. Debt Schemes
| Sr. No. | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|---|
| 1 | Overnight Fund** | Investment in overnight securities having maturity of 1 day | An open ended debt scheme investing in overnight securities |
| 2 | Liquid Fund $ ** | Investment in Debt and money market securities with maturity of upto 91 days only | An open ended liquid scheme |
| 3 | Ultra Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months - 6 months | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 4 | Low Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 5 | Money Market Fund | Investment in Money Market instruments having maturity upto 1 year | An open ended debt scheme investing in money market instruments |
| 6 | Short Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year – 3 years | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 7 | Medium Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years – 4 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 8 | Medium to Long Duration Fund | Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 years – 7 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 9 | Long Duration Fund | Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years | An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__)# |
| 10 | Dynamic Bond | Investment across duration | An open ended dynamic debt scheme investing across duration |
| 11 | Corporate Bond Fund | Minimum investment in corporate bonds – 80% of total assets (only in AA+ and above rated corporate bonds.). | An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds. |
| 12 | Credit Risk Fund^ | Minimum investment in corporate bonds – 65% of total assets (only in AA* and below rated corporate bonds) | An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds). |
| 13 | Banking and PSU Fund | Minimum investment in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds – 80% of total assets | An open ended debt scheme predominantly investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds |
| 14 | Gilt Fund | Minimum investment in Gsecs- 80% of total assets (across maturity) | An open ended debt scheme investing in government securities across maturity |
| 15 | Gilt Fund with 10 year constant duration | Minimum investment in Gsecs- 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years | An open ended debt scheme investing in government securities having a constant maturity of 10 years |
| 16 | Floater Fund | Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives) – 65% of total assets | An open ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives) |
**Provisions of SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010 shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.
$ All provisions mentioned in SEBI circular SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009
in respect of liquid schemes shall be applicable
# Please refer to the page number of the Offer Document on which the concept of Macaulay’s Duration has been explained
^ Words/ phrases that highlight/ emphasize only the return aspect of the scheme shall not be used in the name of the scheme (for instance Credit Opportunities Fund, High Yield Fund, Credit Advantage etc.)
* excludes AA+ rated corporate bonds
3. Hybrid Schemes
| Sr. No. | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|---|
| 1 | Conservative Hybrid Fund | Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments- between 75% and 90% of total assets | An open ended hybrid scheme investing predominantly in debt instruments |
| 2 | Balanced Hybrid Fund @ | Equity & Equity related instruments- between 40% and 60% of total assets; Debt instruments- between 40% and 60% of total assets No Arbitrage would be permitted in this scheme | An open ended balanced scheme investing in equity and debt instruments |
| Aggressive Hybrid Fund @ | Equity & Equity related instruments- between 65% and 80% of total assets; Debt instruments- between 20% 35% of total assets | An open ended hybrid scheme investing predominantly in equity and equity related instruments | |
| 3 | Dynamic Asset Allocation or Balanced Advantage | Investment in equity/ debt that is managed dynamically | An open ended dynamic asset allocation fund |
| 4 | Multi Asset Allocation ## | Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes | An open ended scheme investing in , , (mention the three different asset classes) |
| 5 | Arbitrage Fund | Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets | An open ended scheme investing in arbitrage opportunities |
| 6 | Equity Savings | Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets Minimum hedged & unhedged to be stated in the SID. Asset Allocation under defensive considerations may also be stated in the Offer Document | An open ended scheme investing in equity, arbitrage and debt |
@ Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or Balanced fund
## Foreign securities will not be treated as a separate asset class
4. Solution Oriented Schemes
| Sr. No | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|---|
| 1 | Retirement Fund | Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier | An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier) |
| 2 | Children’s Fund | Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier | An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier) |
5. Other Schemes
| Sr. No | Category of Schemes | Scheme Characteristics | Type of scheme (uniform description of scheme) |
|---|---|---|---|
| 1 | Index Funds/ ETFs | Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets | An open ended scheme replicating/ tracking _ index |
| 2 | FoFs (Overseas/ Domestic) | Minimum investment in the underlying fund- 95% of total assets | An open ended fund of fund scheme investing in fund (mention the underlying fund) |
4 Likes
So you are saying that you can do almost anything with the fund but JUST REGISTERING IT AS ELSS will make that fund an ELSS.
A follow up question can be, ELSS seems to be beneficial for fund managers because of the lock in facility, which helps them plan better the investments they need to do. So what is the reason we have so few ELSS funds as a ratio of the total number of funds in existence?
By registering a mutual fund as an ELSS mutual fund, the mutual fund house will be bound by investment characteristics for that particular category (in ELSS’s case, investing 80% of total assets in equity & equity-related instruments in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance).
A mutual fund house can only offer one scheme per category (with few exceptions) as mentioned in the Circular referenced above -
Only one scheme per category would be permitted, except:
i. Index Funds/ ETFs replicating/ tracking different indices;
ii. Fund of Funds having different underlying schemes; and
iii. Sectoral/ thematic funds investing in different sectors/ themes
This rule likely prevents the mutual fund house from offering multiple ELSS funds.
There are 44 Mutual fund houses in India, of which 38 are offering ELSS funds currently. Also, even though the ELSS funds are limited in number, they manage over 1.28 lakh crores of funds as of March 2021.
1 Like
@Sahin_Sarkar
The following are the categories in Mutual Funds. Out of these, one is ELSS category.
Every found house has one ELSS category. You can choose the fund house according to your liking.
The following are some of the fund houses under ELSS category :
Hey Prayag, in the ELSS category, is there any percentage fixed for Large, Mid and Small cap companies or it is upto the fund manager, what ratio he decides to allocate for Bluechip companies and Mid/Small companies ?
From what I could find, there is only a requirement for a minimum of 80% investment in equities. There are no specific requirements related to investments in Large/Mid/Small-cap companies.
This is mentioned in Rule 5 of the Equity Linked Savings Scheme, 2005 -
Investment of Equity Linked Saving Funds
5. (a) The funds collected under a plan shall be invested in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investment may also be made in partly convertible issues of debentures and bonds including those issued on rights basis subject to the condition that, as far as possible, the non-convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of twelve months.
(b) It shall be ensured that funds of a plan shall remain invested to the extent of at least eighty per cent in securities specified in clause (a). The Unit Trust and Mutual Fund shall strive to invest their funds in the manner stated above within a period of six months from the date of closure of the plan in every year. In exceptional circumstances, this requirement may be dispensed with by the Unit Trust or the Fund, in order that the interests of the assessee are protected.
(c) Pending investment of funds of a plan in the required manner, the Unit Trust and Mutual Fund may invest the funds in short-term money market instruments or other liquid instruments or both. After three years of the date of allotment of the units, the Unit Trust or Mutual Fund may hold up to twenty per cent of net assets of the plan in short-term money market instruments and other liquid instruments to enable them to redeem investment of those unit holders who would seek to tender the units for repurchase.
This can also be verified by checking the indexes against which various ELSS mutual funds are benchmarked -
| S.No. | Scheme Name | Benchmark |
|---|---|---|
| 1 | Aditya Birla Sun Life Tax Relief 96 Fund | S&P BSE 200 Total Return Index |
| 2 | Axis Long Term Equity Fund | S&P BSE 200 Total Return Index |
| 3 | Baroda ELSS 96 Fund | S&P BSE 200 Total Return Index |
| 4 | BNP Paribas Long Term Equity Fund | NIFTY 200 Total Return Index |
| 5 | BOI AXA Tax Advantage Fund | S&P BSE 500 Total Return Index |
| 6 | Canara Robeco Equity Tax Saver Fund | S&P BSE 100 Total Return Index |
| 7 | DSP Tax Saver Fund | NIFTY 500 Total Return Index |
| 8 | Edelweiss Long Term Equity Fund (Tax Savings) | NIFTY 500 Total Return Index |
| 9 | Franklin India Taxshield Fund | NIFTY 500 Total Return Index |
| 10 | HDFC Taxsaver Fund | NIFTY 500 Total Return Index |
| 11 | HSBC Tax Saver Equity Fund | S&P BSE 200 Total Return Index |
| 12 | ICICI Prudential Long Term Equity Fund (Tax Saving) | NIFTY 500 Total Return Index |
| 13 | IDBI Equity Advantage Fund | S&P BSE 200 Total Return Index |
| 14 | IDFC Tax Advantage (ELSS) Fund | S&P BSE 200 Total Return Index |
| 15 | Indiabulls Tax Savings Fund | S&P BSE 500 Total Return Index |
| 16 | Invesco India Tax Plan Fund | S&P BSE 200 Total Return Index |
| 17 | ITI Long Term Equity Fund | NIFTY 500 Total Return Index |
| 18 | JM Tax Gain Fund | S&P BSE 500 Total Return Index |
| 19 | Kotak Tax Saver Fund | NIFTY 500 Total Return Index |
| 20 | LIC MF Tax Plan Fund | NIFTY 500 Total Return Index |
| 21 | L&T Tax Advantage Fund | S&P BSE 200 Total Return Index |
| 22 | Mahindra Manulife ELSS Kar Bachat Yojana | NIFTY 200 Total Return Index |
| 23 | Mirae Asset Tax Saver Fund | NIFTY 200 Total Return Index |
| 24 | Motilal Oswal Long Term Equity Fund | NIFTY 500 Total Return Index |
| 25 | Navi Long Term Advantage Fund | S&P BSE 100 Total Return Index |
| 26 | Nippon India Tax Saver (ELSS) Fund | S&P BSE 100 Total Return Index |
| 27 | Parag Parikh Tax Saver Fund | NIFTY 500 Total Return Index |
| 28 | PGIM India Long Term Equity Fund | S&P BSE 200 Total Return Index |
| 29 | Principal Tax Savings Fund | NIFTY 500 Total Return Index |
| 30 | Quant Tax Plan | NIFTY 50 Total Return Index |
| 31 | Quantum Tax Saving Fund | S&P BSE 200 Total Return Index |
| 32 | SBI Long Term Equity Fund | S&P BSE 500 Total Return Index |
| 33 | Shriram Long Term Equity Fund | NIFTY 500 Total Return Index |
| 34 | Sundaram Diversified Equity Fund | S&P BSE 200 Total Return Index |
| 35 | Tata India Tax Savings Fund | S&P BSE Sensex Total Return Index |
| 36 | Taurus Tax Shield Fund | S&P BSE 200 Total Return Index |
| 37 | Union Long Term Equity | S&P BSE 500 Total Return Index |
| 38 | UTI Long Term Equity Fund | NIFTY 500 Total Return Index |
2 Likes
Hi, I want to know that TAX Deduction of ELSS Mutual Fund starts from the first year until we exit the MF means every year until the expiry year or only at the end year when we exit/expiry of the ELSS MF…? please someone answer this…
Every individual investment date in ELSS will have a lockin period of 1095 days, be it lumpsum or SIP transaction.
1 Like