All of us want to invest in good funds.

All of us want good returns.

None of us want to pay tax.

Hence, ELSS funds.

Tax Saving Mutual Funds or ELSS funds have become very popular with users because of the benefits they offer, like:

1. Higher Returns;
2. Lower lock-in period
3. Lower minimum investment.

The best Equity-Linked Saving Scheme (ELSS) mutual funds allow investors to save tax and they also provide an opportunity for long-term capital appreciation.

Among all the tax saving schemes, this is the only one which gives absolute exposure to equity.
Even though ELSS funds are risky, with minimal lock-in period, it has emerged as the most attractive tax saving vehicle.

5 Best ELSS Funds- 2018

1. Aditya Birla Sun Life Tax Relief 96

This is one of the best ELSS funds to invest in 2018. It is an open-ended fund with a lock-in period of 3 years. It is a fund with moderately high risk and has given a return of 19.76% since its launch.

Returns of Aditya Birla Sun Life Tax Relief 96 Fund:

DurationReturns
1 year10.4%
3 years12.7%
5 years22.9%
Since launch19.76%

Key Information 

Launch Date01 January 2013
NAV (18 July 2018)₹32.7
Plan TypeDirect
Rating by Groww5 Star
AUM (Fund Size)₹6,187 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund5 years old
Expense Ratio1.12%
Exit LoadNIL
Type Open Ended

Analysis

1.This fund has garnered a 5-star rating by Groww.

2.The fund follows a multi-cap strategy.

3.The investment philosophy of the fund is to invest in quality companies so that the returns remain consisitent.

2. IDFC Tax Advantage (ELSS) Fund

It is a fund with moderately high risk and has given a return of 19.6% since its launch. The scheme seeks to build a diversified portfolio consisting of stocks of companies with strong fundamentals.

Returns of IDFC Tax Advantage (ELSS) Fund

DurationReturns
1 year6.8%
3 years10.6%
5 years21.1%
Since launch19.6%

Key Information

Launch Date01 January 2013
NAV (18 July 2018)₹58.6
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹897 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund5 years old
Expense Ratio1.18%
Exit LoadNIL
Type Open Ended

Analysis 

1.This is an aggressive fund in the ELSS category. The portfolio shows a 15 – 20% allocation in small caps and 25-40%  allocation in mid-caps. Large caps account for the residual portion.

2. The fund identifies companies based on industry growth potential and interacting with the management.

3. DSP BlackRock Tax Saver Fund

The primary investment objective of the scheme is to generate medium and long-term capital appreciation from a diversified portfolio that substantially constitutes of equity and equity-related securities.

The fund also aims to enable investors to avail a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.

Returns of DSP BlackRock Tax Saver Fund

DurationReturns
1 year3.0%
3 years11.0%
5 years20.6%
Since launch20.3%

Key Information

Launch Date01 January 2013
NAV (18 July 2018)₹46.8
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹3,834 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas not consistently outperformed its benchmark NIFTY 500 TRI since its launch. 1Y return is below benchmark.
Age of the fund5 years old
Expense Ratio1.30%
Exit LoadNIL
Type Open Ended

Analysis 

1. The growth of this fund is attributed to the investment in fundamentally strong companies. The fund is managed by Rohit Singhania.

2. The fund primarily holds allocation (67.2%) in large-cap companies. These companies have already proven themselves in the market and have displayed an excellent performance record.

3.The balance is invested in mid-sized companies (27.5%). A very small portion is invested in small-cap companies.

4. Axis Long Term Equity Fund

This has been rated one of the best tax saving funds in the last one year.

Returns of Axis Long Term Equity Fund

DurationReturns
1 year19%
3 years12.9%
5 years25.2%
Since launch19.0%

Key Information

Launch Date01 January 2013
NAV (18 July 2018)₹47.2
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹17,299 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark S&P BSE 200 TRI since its launch.
Age of the fund5 years old
Expense Ratio1.24%
Exit LoadNIL
Type Open Ended

Analysis 

1.The fund is primarily large-cap oriented. The allocation in large-cap funds has been 65-70%, followed by 25-30% in mid-caps and 25-30% in small-caps.

2. Consistent performance has increased the asset size of the fund from ₹4 crores at launch to ₹16,108 crore by December 2017.

5. ICICI Prudential Long Term Equity Fund (Tax Saving)

This scheme seeks to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities

Returns of ICICI Prudential Long Term Equity Fund (Tax Saving)

DurationReturns
1 year9.6%
3 years10.2%
5 years20.8%
Since launch20.8%

Key Information

Launch Date01 January 2013
NAV (18 July 2018)₹377.6
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹5,258 Cr
RiskometerModerately High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark NIFTY 500 TRI since its launch.
Age of the fund5 years old
Expense Ratio1.21%
Exit LoadNIL
Type Open Ended

Analysis 

1.This fund focuses mainly on large and mid-sized companies to invest in. The fund has increased allocation towards large funds to 65%.

2.The balance is invested in mid-cap funds (27.5%) and a very small proportion is invested in small-cap funds (1.6%) funds.

3.ICICI Prudential Long Term Equity Fund has its highest allocation in the financial sector. The allocation weightage is 24.8%. The other sectors in which the fund has invested in is energy (12.3%), pharma (10.4%), consumer goods (11.8%), etc.

What is ELSS ?

Equity-linked Saving Scheme (ELSS) is a dedicated mutual fund scheme that allows investors to save tax. It also provides an opportunity for long-term capital appreciation.

An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high returns.

In order to do improve equity participation, the government has 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.

What are the Key Features of an ELSS Fund?

  • It’s a Surrogate route to direct stock markets
  • Tax saving instrument
  • Three year lock-in period
  • Can be held even after the completion of three years
  • Offers a dividend as well as growth option.
  • Minimum investment option is low.
  • One can invest in small amounts through SIP
  • Potential to deliver higher returns on investment.

Also Read: ELSS V/S ULIP- Which One Will Give You the Highest Returns?

How Much Can You Save by Investing in an ELSS Fund?

Tax planning or income tax saving is an integral part of investing. Tax planning in India involves selection of the right tax saving instrument and making proper investments.

One of the key sections under which individuals can save tax is Section 80c of the Indian Income Tax Act. Under this section, investments up to ₹1,50,000 per annum can be exempted from your taxable income.

If you invest ₹1.5 lakh in the financial year 2018-2019, you will get tax benefits in the financial year 2018-2019.

The money invested that year will continue to remain locked-in for 3 years from the date of investment. Investing more than ₹1. 5 lakh in 2018-2019 will not give you any benefit in the next financial year.

Only ELSS Mutual Funds offer tax benefits under section 80c of the Income Tax Act. As per this section, one can avail tax exemptions up to ₹1,50,000 by investing in ELSS funds.

What Should You Remember About ELSS Funds?

1. The lock-in period of ELSS mutual funds 3 years. In other words, these mutual funds cannot be sold before 3 years.

2. If you are investing in ELSS through SIP, each installment can be redeemed after 3 years in the similar fashion. For example: Say, you bought units of ELSS mutual fund in January 2017, then it can be sold only after January 2020, not before that.

3. The lock in period of ELSS is the least when compared with the 5 year lock-in period of the other popular tax saving instruments like PPF Account, National Savings Certificate, Tax Saving Fixed deposit etcetera.

Also Read: 15 Things to Know About ELSS Funds

What Should You Consider Before Investing?

1.Higher Returns

Since these funds invest in equity and equity-related investments, the returns they provide are high. However, don’t blindly invest in the fund which has the highest returns. Invest based on the duration you want to invest for.

2.Financial Condition

Every person’s financial condition is different. Invest in a fund accordingly. Evaluate the funds you want to invest in. Don’t invest in a fund because of its popularity. Invest in the fund only if you think its valuable for your investment needs.

3. Review Your Investment

It is your responsibility to review your investments periodically. By this we don’t want you to look at your investments every few fours. Once a few weeks is good enough.

Read More: 10 Secrets Only Successful Mutual Fund Investors Know

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.

Happy Investing!

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