Fund review. Should you invest in NJ ELSS Tax Saver fund?

New fund house NJ Mutual Fund has launched an NJ ELSS Tax Saver Scheme, an open-ended equity-linked saving scheme.

The NFO closes on June 9, 2023. One of the clear pulls for investors to invest in ELSS is the facility to claim a deduction of up to ₹1.5 lakh from one’s gross total taxable income under Section 80C every financial year.

All you have to agree to is the three-year lock-in for each investment. With over 40 open-ended schemes in the ELSS category, how will NJ ELSS Tax Saver Scheme stand out from the competition? Here are the details.

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Investment strategy

The investment objective of the NJ ELSS Tax Saver Scheme is to generate long-term capital appreciation by investing in equity and equity-related instruments across market capitalisations.

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The scheme will select securities using a rule-based active approach based on proprietary protocols. These protocols are derived based on analysis of various market, macroeconomic and fundamental factors.

Importantly, allocation to equity stocks will be decided based on market and macroeconomic variables including equity market valuation, interest rates, Gsec yields, and money supply.

The scheme will invest predominantly in equity and equity-related instruments. However, it will not invest in foreign securities, securitised debt, derivative, and equity-linked debentures. Presently, stock lending is not permitted as per the ELSS guidelines

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With NJ Mutual Fund focussed on rule-based investing frameworks, NJ ELSS Tax Saver Scheme will select and weight equity stocks using factor-based rules (factors: low volatility, momentum, quality, and value) that aim to achieve a mix of attributes considered supportive of long-term performance within risk constraints.

The rule-based active investment strategy seeks to eliminate all human intervention at the stock selection stage, preventing human bias and ensuring that the portfolio is constructed as intended by the proprietary protocol.

• Quality: NJ ELSS Tax Saver Scheme appears set to prioritise quality in the portfolio and the rule-based investing framework leads to a higher conviction. It remains to be seen whether the priority to quality will bump up portfolio valuation or not.
• Focus: The new ELSS scheme will have a focussed portfolio. While this increases the risk due to lower number of stocks, each stock in a focussed portfolio has greater relevance to overall performance.

Other details

NJ ELSS Tax Saver Scheme shall have both a Regular plan and a Direct plan. Each plan offers two options: Growth Option and Payout of Income Distribution cum Capital withdrawal Option (IDCW).

• The minimum investment amount in NFO is ₹500 (lumpsum). There is an option to invest via the SIP route.
• There will be no exit load. The ELSS fund will be benchmarked against Nifty 500 TRI.
• Fund manager for the scheme is Viral Shah.
• NJ Mutual Fund has a total of four products including the ELSS. The others are NJ Balanced Advantage, NJ Overnight and NJ Arbitrage.

Our take

As a new scheme based on rule-based investing framework, NJ ELSS Tax Saver Scheme may have a bright future ahead. It should be allowed to build a performance track record of its own so that investors can assess the scheme better.

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At this point in time, investors considering ELSS are better off sticking to proven names such Mirae Asset Tax Saver, Bandhan TaxAdvantage, Canara Robeco Equity Tax Saver, DSP Tax Saver and Kotak Tax Saver.

They are rated 4/5 stars by bl.portfolio Star Track MF rating methodology.

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