MF Query Board

Please guide about whether Nippon India Tax Saver Fund is a good tax-saving fund for long-term wealth creation?

For investors with moderately high to high risk appetites, mutual equity linked savings schemes (ELSS) are one of the best Section 80 C investment options for wealth creation. If you had invested ₹10,000 per month in Nippon India Tax Saver Fund through systematic investment plan (SIP) 10 years back, your investment would have grown in value to nearly ₹21.11 lakhs by now (XIRR of 10.97 per cent) against your investment of ₹12 lakhs (SIP start date November 1, 2012 with return as on October 14, 2022. The chart below shows the growth of ₹10,000 monthly SIP investment in Nippon India Tax Saver Fund over the last 10 years compared to Public Provident Fund.[EasyDNNnews:PaidContentStart]

You can see that Nippon India Tax Saver Fund created much more wealth than PPF. The chart below shows the three years’ rolling returns of Nippon India Tax Saver Fund versus the category average rolling returns since inception. We are analysing three-year rolling returns of the scheme versus the benchmark because ELSS funds have a three-year lock-in period and investors need to remain invested for at least three years in ELSS. You can see that Nippon India Tax Saver Fund has consistently outperformed the ELSS category for many years since its inception.

It has underperformed in more recent years due to its consistent Large-Cap bias and may have missed out a bit on capturing the Mid-Cap and Small-Cap rally in 2020 and 2021 relative to other ELSS funds which had higher allocations to mid-caps and small-caps. However, you can see that Nippon India Tax Saver Fund is starting to close the gap with its peers. Furthermore, the large-cap bias (large-caps constitute 72 per cent of the scheme portfolio) of the fund will provide a more stable investment experience for new investors or investors who do not have very high-risk appetites.

The chart below shows the growth of ₹1 lakh lump sum investment in Nippon India Tax Saver Fund since inception compared to PPF. You can see that your investment would have multiplied nearly eight times over the last 17 years at CAGR of 12.7 per cent.

 Source: Advisorkhoj Research, as on October 12, 2022. Disclaimer: Past performance may or may not be sustained in the future. Unlike PPF, mutual funds are subject to market risks.
Consult your financial advisor before investing.

Wealth Creation through SIP
The following chart indicates the returns of a monthly SIP of ₹10,000 in Nippon India Tax Saver Fund since its inception. With a total investment of approximately ₹20.50 lakhs, investors could have gained over ₹65 lakhs over the past 17+ years, with an XIRR of 12.31 per cent. This consistent return on the fund’s SIP investment showcases its potential to generate wealth over a long-term investment period as of October 14, 2022.

Source: Advisorkhoj Research, as on October 12, 2022. Disclaimer: Past performance may or may not be sustained in the future. Unlike PPF, mutual funds are subject to market risks. Consult your financial advisor before investing.

Nippon India Tax Saver Fund and Section 80 C
Based on historical data, equity linked savings scheme (ELSS) has shown high potential for wealth creation compared to other investment options available under Section 80 C. It is the most liquid option with a lock-in period of only three years. ELSS is also a tax-friendly investment option as capital gains of up to ₹1 lakh are tax-exempt, and any gains beyond that are taxed at a rate of 10 per cent. Nippon India Tax Saver Fund has demonstrated strong performance in creating wealth over the past 17 years. Since the fund focuses on large-cap stocks, it provides a more stable investment experience for investors who are new to investing or have a low risk appetite. The recent market correction may offer attractive investment opportunities for those with long investment horizons.

Target Audience
A minimum investment tenure of three years is required as units cannot be redeemed before this period. However, it is recommended that investors consider an investment horizon of five years or longer. For those investing in the scheme via SIP, each instalment will be locked in for three years, so it is essential to plan investments accordingly. This scheme is suitable for investors with high to very high risk appetites. It is recommended that investors consult with their mutual fund distributors or financial advisors to determine if Nippon India Tax Saver Fund is appropriate for their tax planning needs.

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