ELSS funds based on Index

Zerodha Coin - Direct MF
1

Do we have any ELSS fund based on any index - Nifty 50 or midcap or small cap Index ?

@Bhuvan @siva

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2

Unfortunately, no.

3

Thank you @Bhuvan
Any idea why AMC are not motivated to launch index based funds.
@siva

Could you post this question to any AMC s which is in contact with Zerodha.

4

The average expense ration of actively managed ELSS funds is 1.2%. The average expense ratio of an index fund is 0.1%-0.2% Why would an AMC lose 90% margins on a product? :slight_smile:

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5

Thank you for insight.
But AMC would need not do any reasearch . That would save money.

They have to just duplicate. Hence reduction in expense Ratio.

6

Not nearly enough as they would lose :slight_smile: To simply put there are no incentives for them to do so.

7

I too had wondered why there is no index-based ELSS fund.

Earlier, I had mentioned that since ELSS funds have 3-year lock-in, the effective TER is 3-times.
https://tradingqna.com/t/effective-ter-of-elss-funds-is-more-than-you-think-of-it/

If you go to a MF distributor, the first thing they would ask you to do is invest in ELSS fund and because of 3-year lock-in they would keep on getting the guaranteed commission. Also regular ELSS funds have higher TER. So it’s in the self interest of the distributor to ask you to do so.

More so why one should go direct and also factor TER while choosing an ELSS fund (but not the only criteria).

I have been tracking the TER changes of ELSS funds since last year. Until recently Mirae Asset Tax Saver Fund had the lowest TER in ELSS category 0.2% and then slowly it started increasing, current TER being 0.64%.

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8

There used to be a fund just as you have wished for:- Franklin India Index Tax Fund.
As the name suggests it was an index fund with tax advantage, but unfortunately it was discontinued as on Sep 2011 onward and now merged with Franklin India Index Fund.

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9

AMC job is to sell and they’ll do whatever to do so.

10

Read that the CPSE ETF (which tracks Nifty CPSE Index) is now eligible for 80C deduction

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@Quicko @TAXIQ.IN

Would it be possible to share more details about the rules surrounding investment in CPSE ETF for tax benefit? Do we need to hold the ETF for 3 years (like ELSS) or a different time frame for availing tax benefits? Can we hold the ETF units directly in our Demat account?

I have only come across articles which mention about CPSE ETF getting 80C benefit but none explains the details

12

CPSE ETF would provide tax benefit under Section 80C similar to the tax deduction for investment in ELSS. Thus, there would also be a lock in period. From taxation point of view, trading in CPSE ETF would be similar to that of Equity ETFs. You can read more about it here - Income Tax on ETF (Exchange Traded Funds) in India.
Hope this helps :slight_smile:

@Bhuvan might be able to help you regarding the rules of investment into CPSE ETF

13

Though in the Final Budget for the year 2019-20, the Government made a mention of offering an “investment option in ETFs on the lines of Equity Linked Savings Scheme (ELSS)”, it was still under review, at the time of presentation of the Budget for the year 2020-21.

I am pasting the relevant extract for your reference:

“In order to encourage retail participation in the ETF, a draft scheme for deduction under Section 80C of the Income Tax Act 1961on the lines of Equity Linked Savings Scheme (ELSS) was sent by DIPAM to DOR which is under examination of DOR.”

Edit: In conclusion, I think that investments made in ETFs, are not yet eligible for deduction u.s. 80C of Income Tax Act.

Reference:

  1. Implementation of Budget Announcements 2019-2020 (Refer to Serial Number 82 relating to Paragraph 101 of Budget Announcements, 2019-20).
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