Recently I have posted an article on Best Equity Mutual funds and now as the tax saving season is on here I am presenting you the best tax saving mutual funds. It is the time for planning your tax saving exercise as the financial year 2018-19 is about to end. ELSS tax saving mutual funds are the best way to save income tax and getting a good return on your investment. ELSS (Equity Linked Saving Scheme) is the best way to save tax and create wealth.
On ELSS funds you will get tax benefits under section 80 C of the income tax act. It comes with a lock-in period of 3 years, means you cannot withdraw the funds before completion of 3 years from the date of purchase. It offers various benefits as mentioned below.
Features of ELSS [Tax Saving] Mutual Funds
- It invests into the equity market
- There is no capping limit on how much you can invest in ELSS
- Get tax benefit under section 80C
- ELSS funds come with a lock-n period of 3 years
- LTCG (Long Term Capital Gain) tax is applicable to ELSS funds
- You can invest in ELSS funds with as low as Rs. 500
- It comes with both dividend and growth options
According to me, there are 2 distinct benefits of investing in ELSS mutual funds.
- 100% investment in equity schemes for higher returns with tax benefits
- Reasonably, short lock-in period of 3 years
Let’s have a look at some other benefits of ELSS funds.
- Highest returns among all tax saving instruments
- The tax benefit of up to Rs. 1.5 lakhs
- You can continue to hold the fund even after completion of the lock-in period of 3 years
- It provides investment through SIP option
- Excellent gateway for the new investor in the stock market
The shortcoming of ELSS Mutual Funds
Though it is the best tax saving option, there are certain drawbacks of ELSS funds as below
- It invests in the equity market, so the risk is high, sometimes it gives negative returns
- There is a lock-in period of 3 years, means you can not withdraw the funds before completion of 3 years from investment date
- On redemption, it is taxable (you need to pay LTCG tax on the profit you earn)
Best ELSS Mutual Funds
Aditya Birla Sun Life Tax Relief 96 – Direct (Growth) ∗∗∗∗∗
Aditya Birla Sun Life Tax Relief 96 is the best ELSS fund so far. It has given a whopping 24.47% return since inception. It invests into the high growth company with a composition of 80% into equity and rests 20% into debt funds. Its direct fund scheme was launched in Jan 2013 and that has also given a very good return of 17.63%. In the last 3 years, the fund has given 13.61% returns which is very good along with tax saving benefits.
Key Highlights of the fund
- Its regular plan was launched in the year 1996 (22 years old fund)
- Consistently given high returns (Since inception 24.47% CAGR returns)
- Starts with as low as Rs. 500 SIP
- Well balance asset allocation among various sectors
The fund invests into multi-cap category across various sectors hence it is able to generate high returns. From its asset allocation, you can very well judge that it is investing in only quality companies. (see the fund holding below)
|Thomas Cook (India)||Services||4.53|
|Johnson Controls – Hitachi Air Conditioning India||Cons Durable||3.17|
|Kotak Mahindra Bank||Financial||3.15|
|Maruti Suzuki India||Automobile||1.26|
|Tata Consultancy Services||Technology||1.26|
HDFC Tax Saver Fund – Direct (Growth) ∗∗∗∗∗
The is from the HDFC AMC offers tax saving with wealth creation in the long term. The fund is launched in 1996 and is one of the oldest funds in the ELSS category. It has generated 27% CAGR returns since its inception.
The fund is giving good returns in spite of its passive investment strategy. It invests into low-risk companies and hence it’s failed in taking the advantage of the market’s upward movement. The AUM of the fund is steadily increasing since 2016 after the market rally that we have witnessed.
In order to generate the high return, the fund invests in growth companies. The company under this funds would generally consist of medium to large-sized companies.
|State Bank of India||Financial||6.88|
|Larsen & Toubro||Construction||4.28|
|Oracle Fin Ser Software||Technology||2.24|
|Power Grid Corporation||Energy||1.39|
|L&T Technology Services||Engineering||1.27|
|Tata Motors DVR||Automobile||1.21|
|Gujarat Pipavav Port||Services||1.09|
|ICICI Prudential Life Insurance Co. Ltd.||Financial||1|
Axis Long Term equity Fund-Direct (Growth) ∗∗∗∗
Axis long-term equity fund is another good fund which has given a very good return in the past and continued to perform year on year. AUM of 16,467 crores as on 30th September 2018. It has a proven track record of 17% CAGR return since its inception. It has consistently outperformed its benchmark BSE 100 Funds since its launch.
You can start investing in the fund for as low as Rs. 500. The fund is investing around 97% of the AUM into equity funds.
|TOP 5 SECTORS||% Of Net Assets|
|Tata Consultancy Services||Technology||8.44|
|Kotak Mahindra Bank||Financial||6.59|
|Maruti Suzuki India||Automobile||4.82|
|Sun Pharmaceutical Inds.||Healthcare||3.88|
|TTK Prestige||Cons Durable||3.27|
|Info Edge (India)||Services||2.93|
|Motherson Sumi Systems||Automobile||2.66|
|Larsen & Toubro||Construction||1.96|
|Astral Poly Technik||Chemicals||1.36|
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