Are you looking at a few tax saving options?

As the financial year, 2018-19 is inching towards the end, it is that time of the year when  taxpayers are busy finalizing their tax-saving investments.

As usual, Equity Linked Savings Schemes ( ELSS ) are on the shopping list of many discerning investors looking to save taxes.

Why tax-saving funds are popular?

Equity-linked Saving Scheme (ELSS), also known as tax saving fund,  is a category of mutual fund that the government created to encourage long-term investing in equity.

In order to do improve equity participation, the government allowed investment in equity-based mutual funds to be tax deductible through ELSS schemes.

By offering a tax deduction, the average citizen is encouraged to invest a larger part of their savings in equities. Investing in an ELSS can benefit an investor in multiple ways.

SIP vs Lumpsum: Which Is Better for ELSS Investment?

ELSS are a popular choice for many investors as they help in creating wealth as well as provide a profitable return.

Among all mutual funds, ELSS offer tax benefits under section 80C of the Income Tax Act.

They have a lock-in period of 3 years as compared to the 5 year or higher lock-in period of the other popular tax saving instruments like PPF Account, National Savings certificate, Tax Saving Fixed deposit

ELSS vs PPF: Which is better for saving tax?

Even though ELSS has some risk involved, but with minimal lock-in period, it has emerged as the most attractive tax saving vehicle today.

ULIP Vs ELSS: Which Investment Will Give you the Maximum ROI?

Why should you opt for tax saving funds?

You should consider tax saving funds in your portfolio for these compelling reasons.

1. Tax benefit under Section 80C

Why are liquid funds better than parking money in savings bank account?

Tax benefits

No surprises here. Your investments in ELSS are eligible for a tax deduction of up to Rs 1.5 lakh from your gross total income under section 80C of the Income Tax Act.

2. Lowest lock-in period

Can the best SIP mutual funds disappoint you?

low lock-in period

All tax saving investments typically come with a mandatory lock-in period.

For example, Public Provident Fund (PPF), another tax saving instrument permitted under Section 80C, comes with a 15-year lock-in period. However, you are allowed to make partial withdrawals in PPF from the seventh year.

Tax-saving term deposits have a lock-in period of five years.

ELSS comes with a lock-in period of three years. You can sell your investments in ELSS after 3 years.

3. Benefit from equity exposure

If you are a traditional investor who prefers tax-saving instruments that come with assured returns, you should consider investing in ELSS to take a small exposure to equity.

ELSS are considered ideal for first-time investors to the stock market.

The mandatory lock-in period would help investors to weather the volatility associated with the stock market.

4. No maturity date

Most tax-saving investments such as PPF, tax-saving term deposit, among others, come with a maturity date. The PPF account matures in fifteen years and it can be renewed for another five years.

An ELSS has no such fixed maturity date or period. You can continue to hold on to your ELSS investments as long as you can.

But a common mistake most investors make is to redeem their investments in ELSS as soon as the three-year lock-in ends.

Since the underlying asset class here is equities, they should stay invested for a time horizon of at least five-seven years to garner good returns.

Finally, it is true that ELSS comes with a bunch of benefits. That doesn’t mean that you must invest in it blindly. You should invest in it if it meets your investment objective, horizon and the risk profile.

Best 5 tax saving fund 2019 - At a glance
Fund Name 1Y 3Y 5Y Category Risk
Aditya Birla Sun Life Tax Relief 96 - Direct - Growth -0.82% 13.77% 21.25% Equity
(ELSS)
Moderately High
Invesco India Tax Plan - Direct - Growth 2.61% 13.32% 20.8% Equity
(ELSS)
Moderately High
Axis Long Term Equity Fund - Direct - Growth 4.61% 12.75% 22.08% Equity
(ELSS)
Moderately High
ICICI Prudential Long Term Equity Fund (Tax Saving) - Direct - Growth 3.69% 11.12% 18.16% Equity
(ELSS)
Moderately High
L&T Tax Advantage Fund - Direct - Growth -1.8% 14.3% 18.46% Equity
(ELSS)
Moderately High

Best 5 Tax Saving Funds 2019 – Details

Here is the list of top 5 funds for tax saving in 2019.

1. Aditya Birla Sun Life Tax Relief 96 – Direct – Growth

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹31.1
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹6,628 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.11%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Investment Objective

The scheme seeks long-term capital growth and will invest approximately 80 per cent of its assets in equity, while the balance would be a invested in debt and money market instrument.

It was converted to an open-ended scheme with effect from July 1999. A combination of top down & bottom up approach will be followed in the stock selection process.

Holding Analysis

Fund Manager

Ajay Garg since Jan 2013

  • Education: Mr. Garg is B.E (Electronics) and MBA (Finance).
  • Experience: Prior to joining Birla Sun Life AMC in 2003 he has worked with Birla Sun Life Securities Ltd.

Fund Analysis

One of the oldest ELSS funds, this fund sported a three-star rating for many years but has shown a material improvement in performance since 2014, climbing to the five-star ranking recently.

The fund has been consistently overweight on mid-caps relative to the category, with about 40 to 50 per cent allocation in large-caps and about 50 per cent in mid-caps in recent times.

Overall, it’s a fund that sticks to quality mid-caps for the long haul.

2. Invesco India Tax Plan – Direct – Growth

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹51.8
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹609 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 0.99%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Investment Objective

The scheme aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. It intends to invest across market capitalization sectors utilizing bottom up approach.

It will aim to have concentrated well researched portfolio, which would be around 20 – 50 stocks.

Holding Analysis

Fund Manager

Amit Ganatra: Since Mar 2018

  • Education: Mr. Ganatra holds a Commerce degree and is a Charted Accountant. He is also a Chartered Financial Analyst from AIMR.
  • Experience: Prior to joining Invesco Mutual Fund, he has worked with DBS Cholamandalam AMC Pvt. Ltd. and Fidelity.

Dhimant Kothari since Mar 2018

  • Education: Mr. Kothari is a Chartered Accountant and holds a Commerce degree.
  • Experience: In his last assignment, he was working as Senior Manager Research with Credit Analysis and Research Ltd., His other assignments include Lotus India Asset Management and CRISIL Ltd.

Fund Analysis

The year-on-year returns of this fund show it to be equally good at navigating both bull and bear markets.

It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014.

The fund’s recent large-cap tilt may help contain downside in the event of a market correction.

A good choice for investors looking for a conservative tax saver.

3. Axis Long Term Equity Fund – Direct – Growth

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹43.9
Plan Type Direct
Rating by Groww 4 Star
AUM (Fund Size) ₹16,999 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.24%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Investment Objective

The scheme aims to generate regular long-term capital growth from a diversified portfolio of equity and equity-related securities.

The Scheme Will invest in companies with strong growth & a sustainable business model.

Holding Analysis

Fund Manager

Jinesh Gopani: Since January 2013

  • Education: Mr. Gopani is a B. Com (H) and MMS from Bharati Vidyapeeth Institute of Management Studies and Research.
  • Experience: Prior to joining Axis AMC he has worked with Birla Sun Life AMC, Voyager India Capital Pvt. Ltd., Emkay Shares & Stock Brokers Limited and Net worth Stock Broking Limited.

Fund Analysis

The fund has slipped to a four-star rating in the last few months after retaining a five-star rating since launch. It witnessed a slowdown in performance in 2016 but has recovered in 2017.

The fund’s investment strategy focuses on buying quality growth stocks. While selecting stocks, the fund looks for superior and scalable businesses, a high return on capital and secular growth.

A good multi-cap option if you like to own quality businesses.

Axis Long Term Equity Fund Vs. ICICI Prudential Long Term Equity Fund: The better ELSS fund

4. ICICI Prudential Long Term Equity Fund (Tax Saving) – Direct 

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹374.1
Plan Type Direct
Rating by Groww 4 Star
AUM (Fund Size) ₹5,386 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY 500 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.18%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Investment Objective

The scheme seeks long-term capital appreciation by investing approximately 90% of the investments in equity instruments, while the balance 10% would be a parked in debt and money market instrument and cash ( Including-money at call).

Holding Analysis

Fund Manager

George Heber Joseph: Since April 2015

  • Education: Mr. Joseph is a B.Com, B.A.(English language & literature), associate member of Chartered Accountants of India and associate member of Cost and Management Accountants of India.
  • Experience: Prior to joining ICICI Pru AMC, he has worked with DSP Merill Lych Ltd. as Senior Specialist – Equity & Treasury Business process study (May 2007 – Feb 2008), Wipro Technologies as Sr. Business Analyst – Securities and Capital market domain (May 2006- May 2007).

5. L&T Tax Advantage Fund – Direct – Growth

Key information

Launch Date 1 January 2013
NAV (2 Nov 2018) ₹55.2
Plan Type Direct
Rating by Groww 4 Star
AUM (Fund Size) ₹3,181 Cr
Riskometer Moderately High
Minimum SIP ₹1,000
Minimum SWP ₹500
Performance w.r.t its Benchmark Has not consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.55%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Investment Objective

The scheme aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.

Holding Analysis

Fund Manager

Soumendra Nath Lahiri since Jan 2013

  • Education: Mr. Lahiri is a B.Tech and PGDM from IIM Bangalore.
  • Experience: Prior to joining L&T Mutual Fund he has worked with Canara Robeco AMC Co. Ltd., Emkay Investment Managers Ltd, Fortuna Capital, DSP Black Rock Investment Managers Pvt. Ltd.

Best way to Invest in ELSS

ELSS gives 2 options for investments.

First through a lump sum and second through Systematic Investing Plan (SIP).


You can either invest in small monthly installments called SIP or in one go called lump sum investment.

Read More: 13 Things to Know About SIP.

Tax planning investments are something that a taxpayer has to make every year.

SIPs are advantageous in that respect.

If you select a good ELSS fund and start a monthly SIP based on your tax planning requirements, you can take care of your tax planning investments, at the least the portion related to ELSS, with a small one-time effort.

Also remember, ELSS, being a tax saver fund has 3 years of lock-in period. i.e., it will give you very low liquidity as you cannot redeem your money before 3 years.

If you are investing in ELSS through SIP, each installment can be redeemed after 3 years in the similar fashion.

Investing periodically also spreads the burden and makes a good investment habit.

An ideal practice would be to start an SIP early in the financial year and continue until March next year.

Conclusion

ELSS is an excellent way to grow your money and save tax at the same time.

Like any other equity mutual fund, the best way to invest in ELSS is through the SIP mode. You should plan ahead and spread your investments throughout the year to reduce the risk of entering the market at a wrong time.

3 Steps to Follow When Your ELSS Lock-in Period Ends

Primary purpose of every ELSS investment should be to achieve a future financial goal or to create long-term wealth for distant goals like retirement planning etc. and tax saving in the year of investment should be an incidental benefit or a secondary objective.

Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose a fund, and invest using net banking – exactly like you would when shopping online.

Start investing in mutual funds early and stay invested for longer duration to get its true benefit. Here are the top 10 mutual fund for you to bet in 2019, check out Best mutual funds to invest in 2019.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww