An easy to follow guide for calculating tax-adjusted returns!

Posted On Friday, Jan 20, 2012


It's not easy to watch your hard earned savings simply getting deducted in taxes. So, with the tax season around the corner, we're giving you a quick run through about how you can save your hard earned money by investing in a Tax Saving (ELSS) scheme.

An ELSS (Equity Linked Saving Scheme) could become you best choice if you're looking for:

  • Deductions under section 80C of the Income Tax Act, 1961
  • Opportunity to invest in the equity markets
  • Long term Capital appreciation
  • Shortest lock-in period of all the tax saving instruments under Section 80C

Take a look at the table below to get an idea about the current income tax slabs for tax payers.

Income Tax Slab (in Rs.)


Upto 1,80,000

No tax

1,80,001 to 5,00,000


5,00,001 to 8,00,000


8,00,000 and above


So depending on where you fit in these slabs, you would be liable to parting with some of your earnings as tax. Quite unfortunate, isn't it?

Let's put some numbers to that... Say you have a salary income of Rs 5, 00,000 for the year, that makes you liable for a 10% tax levy, which amounts to Rs 32,000 (Since the initial Rs. 1,80,000 is exempt from taxation, you are liable to be taxed on the remaining Rs. 3,20,000). Thats quite a lot of money to give away!

If you want to save spending this much on taxes, you could opt for tax saving instruments such as LIC premiums, PPFs, NSC, FDs, ELSS etc. All these avenues help you avail the benefits of Section 80C. And, if you are looking at investing some money that you won't require anytime in the near future, then ELSS could be an interesting tax-saving option to pursue.

Sure, you're aware about all the benefits that ELSS offer you. Now we're putting some numbers to show you just how much you could end up saving.

Tax-adjusted returns account for a fund's capital gains, dividends, and interest during the period.

So just for an illustration, say you invest Rs 1,00,000 in an ELSS. Now, depending on your Tax slab, you could well save a reasonable sum going by the table below.


Tax Slab




Investment Amount (In Rs.)




No. of years




Immediate Tax Savings in Rs. (Excl. Cess)




Rate of Interest on Investment (Assumed)




Amount on maturity (Post 3 Yr Lock-in)




Tax Adjusted Yield




Tax Adjusted Amount on maturity (Post 3 Yr Lock-in)




Overall Benefit (No tax on capital gains)




Considering that a Tax Saving fund has a usual lock in period of 3 years, and that your income falls in the 30% tax bracket, your immediate savings under Sec 80 C could actually be Rs. 30,000 (excluding the education cess levied). That's just about the direct deduction bit!

Let's consider the rate of return: (According to Blomberg data) the BSE Sensex over the past decade has given an average compounded growth rate of 15%. So, say we assume a conservative returns of 12% per annum, your maturity amount post the 3 year lock would actually total Rs. 140,493. Quite a nice number, isn't it?

(The number used in the above table are only for illustration purpose, please contact your financial advisor before investing)

Now what would you say your total savings amounted to? The initial 10 - 20 - 30%? NO! You've saved a lot more when you consider Tax Adjusted Returns. Yes, assuming your tax slab of 30%, your Tax Adjusted Returns actually amounts to an incremental gain of 17.14%. This isn't magic, it's actually quite sample. By investing in a tax saving fund, you save an upfront loss of your tax deduction, and give your money a chance to grow at a decent pace over its lock-in period. That's a two-in-one benefit! Hence don't just consider tax saving when you invest, consider tax adjusted returns.

Now that you are aware about your returns on investments in a simple manner, why not learn about our Quantum Tax Saving Fund.

The Quantum Tax Saving Fund is an equity linked savings scheme with a 3 year lock in period. The scheme has completed its 3 year track record in December 2011, and you can take a look at its performance to make a well informed decision. Click here to view the latest Quantum Tax Saving Fund Factsheet. Give us a call if you'd like us to give you some more numbers to think about!

Saving taxes is not really about number crunching (it may look like it) rather it is about disciplined and planned investing. So, pay your dues as a responsible citizen, but also save your hard earned money smartly with the Quantum Tax Saving Fund.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Quantum Tax Saving Fund: An open ended Equity Linked Savings Scheme with 3 years lock in period. Investment objectives: To achieve long term capital appreciation by investing primarily in shares of companies that will typically be included in the BSE 200 index and are in a position to benefit from the anticipated growth and development of the Indian economy and its markets. Terms of Issue: Units of the scheme can be subscribed /redeemed at the applicable NAV on all Business Days. Declaration of NAV on all Business Days. Entry Load: Not Applicable. Exit Load: Nil. Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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