As we know that the tax season has started, today we will discuss the top 5 Best ELSS Tax Saving Mutual Funds, where you can invest in 2018.
Now many of us will take some such decisions to save tax, which is probably not correct. Bankers and your relationship manager will try to sell the insurance product’s (ULIP and Traditional Policy) on the pretext of tax saving.
Tax saving is also a part of your financial planning, as you plan for your retirement and child education, you should also invest in it with a proper planning. To save tax, we have a lot of options like Tax Saving Fixed Deposit, NSC, PPF. But in all of those, we would prefer to only ELSS TAX SAVING MUTUAL FUNDS
Your objective in a tax saving is not only to save tax, but also to invest your capital and make money in a longer period, and for that objective equity is a perfect choice
What is ELSS tax saving mutual funds?
Simply put, ELSS is well-diversified equity funds which are qualified for tax exemption under sec 80c of the income tax act and offers twin benefits of capital appreciation and tax advantage on investment up to 1.5 lakh. It comes with a lock-in period of 3 years.
Why should one invest in an ELSS?
ELSS funds are one of the best avenues to save taxes under sec 80c. This is because along with the tax benefit it gives you the benefit of the upside potential of equity investment. Also, no tax levied on the long-term capital gains. And in the all other options for tax saving, ELSS tax saving funds has the shortest lock-in period of 3 years.
ALSO READ:- Top 5 best liquid funds to invest in 2018
More about ELSS: –
- Tax saving funds invest predominantly in diversified portfolio of stocks
- Elss funds having lock-in period of 3 years
- ELSS funds are allowed to invest with 500 Rs and in multiple of 500 Rs.
- You can invest in tax saving funds with sip, it helps to instill the disciplined approach towards financial planning and helps to attain a long-term financial goal
- ELSS schemes invest in stocks, therefore investments are subject to market risk, an investor should consider the age and risk appetite.
ELSS Can be a part of financial planning
Tax saving in financial planning is also a prominent integral part. In financial planning, when we talk about retirement and child education, it becomes necessary to invest in equities, because in the long term, only equity will help you to accumulate the corpus for your GOAL. So, you can also align your own goals with the ELSS funds, such as in retirement planning, you can invest in ELSS FUNDS, where you will also get the benefit of investing in diversified equity with tax saving.
TOP 5 BEST ELSS TAX SAVING MUTUAL FUNDS WHERE YOU CAN INVEST IN 2018
ADITYA BIRLA SUNLIFE TAX RELIEF 96
- If you had invested 1 lakh in Birla sun life tax relief -96 at its inception in 1996 the value of your investment today would be nearly 1 crore on an adjusted NAV basis.
- This equity-linked saving scheme was launched nearly 20 years back but is among the top 3 ELSS funds in terms of three years trailing returns even today. Please note that the last 5 years included two very difficult years for the equity market. Yet Birla Sun Life Tax Relief 96 Fund gave tax-free 15.98% compounded annual returns over the last 5-year period.
- This is more than returns given by any non-market linked 80C investments, which gave only a single digit return. Birla Sun Life Tax Relief 96 was launched on March 29, 1996. The fund has Rs 4,349 crore (As on Nov 30, 2017) of assets under management, with an expense ratio of 2.31%.
- The fund is suitable for investment towards long-term financial goals like retirement planning, children’s education, children’s marriage etc. Ajay Garg is the fund manager of this mutual fund scheme. Birla Sun Life Tax Relief 96 has a very well-diversified portfolio.
- The portfolio is well balanced between large cap and small / mid-cap stocks. A portfolio that is well balanced between large cap and small/mid-cap stocks tend to do well across different market conditions, as is evident from the rolling returns of Birla Sun Life Tax Relief 96 Fund over the last years.
- In terms of volatility measurement, a standard deviation of monthly returns over a three-year period had lower volatility than other ELSS FUNDS. Yet in Sharpe ratio funds has done exceptionally well as compared to its category by a good margin.
- Fund has completed 20 years and wealth creation track record of this tax saving mutual funds over 20 years has indeed been outstanding. The fund has sustained its outperformance even in the recent past.
AXIS LONG-TERM EQUITY FUND
- Axis long-term equity fund is quite popular ELSS fund among investors to fulfill the purpose of tax saving and wealth creation over the long term. But investors are not able to decide on the performance of last year that they should switch from the fund and make their portfolio in any other ELSS FUND.
- The fund is based on bottom-up stock picking approach (i.e. fund focusses on high-quality stocks rather than a pre-defined allocation to specific sectors) and invests in good quality businesses with solid fundamentals for the long term to create wealth for investors. 3years lock in only helps to achieve such a purpose as a fund manager can take longer bets while ignoring short volatility in the market.
- The fund invests across market cap with a large cap around 50% -100% and mid-cap cap up to 50%. The fund look on a consistent portfolio in the longer term with limited downside. The focus is on high-quality stock, good business with a strong balance sheet while ignoring the cyclical or high regulated sectors, ones with high political and corporate governance interventions.
- Fund philosophy revolves around to buy and hold quality stocks or business managed by strong-minded managers/promoters that can generate good ROE, cash flow and in turn higher dividends to the shareholders over the longer period. Investing in high quality, high growth fundamentally strong businesses while avoiding cyclical and highly regulated sectors sums up the fund investment methodology.
- Axis long-term equity fund invests in high-quality stocks which command high PE multiple for the business. That implies fund manager is ok to pay higher premiums to good businesses due to such strategy of the fund, there can be instances wherein fund an underperform for a particular duration so that earning catch up with these high PE multiple companies or due to slowness in these businesses which stagnates the stock prices.
- Fund excellent bottom-up stock picking strategy to pick high-quality stocks has not changed which induces the confidence in the fund future. An investor should not be disheartened by the short-term underperformance of the fund against its peers but should stick this quality fund for the long term.
DSP BLACK ROCK TAX SAVER FUND
This fund is suitable for those investors who are looking to save taxes under sec 80c with capital appreciation.
However, since this is an equity-oriented fund, it is subject to market risk and volatility compared to other tax saving instruments like PPF and Tax saving fixed deposit.
However, equity as an asset class generate a superior return over the long term and serve as an effective hedge against inflation.
The fund has Aum base RS 3,462 crore (As on Oct 31, 2017) and an expense ratio of 2.51%. The fund has outstanding performance and generated a consistent return over the last 5 years.
The rolling returns of the fund define why we have added this fund as top 5 ELSS funds to invest.
The last 3 years and 5years rolling returns have done exceptionally well compared to its category and benchmark. This is an evidence of well-thought investment strategy and disciplined approach to portfolio management.
- The fund manager has large-cap bias and his investment style is growth oriented. From a sector perspective, the portfolio is overweight on banking and finance. Banking and Finance account for more than 20% of portfolio value
- Due to the private sector bias in the fund banking sector portfolio, DSP BlackRock TaxSaver Fund was much less impacted by the NPA woes compared to mutual fund schemes which had substantially higher allocations to public sector banks.
- In addition to banking and finance, DSP BlackRock TaxSaver Fund has a bias for other cyclical sectors like Petroleum, Automobiles, and Cement.
- High-quality cyclical stocks, such as the ones in DSP BlackRock TaxSaver Fund portfolio can expect to deliver strong returns over the medium term (2 to 3 years), once we see a cyclical recovery in demand and capex
IDFC TAX ADVANTAGE FUND
- The scheme seeks to build a diversified portfolio comprising stocks of companies with strong fundamentals that are available at reasonable valuations. The scheme can be fully into equities (and equity-related securities) and up to 20% in debt & money market instruments.
- The fund has a higher than category allocation to both mid-cap and small-cap stocks. Mid-cap has anywhere between 30-40%. Large-cap accounted up to 45% and small-cap can go up to 20% in the portfolio.
- The fund has beaten its benchmark by a sizeable margin of 5-6% over 3years & 5 years. Though one-year return show it is lagging behind the category.
- The Fund will invest in well-managed growth companies that are available at a reasonable value. Companies would be identified through a systematic process of forecasting earnings based on a deep understanding of the industry growth potential and interaction with company management.
L&T TAX ADVANTAGE FUND
- The scheme aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.
- The fund having AUM Rs 2762 crore as on 30 Nov 2017, Fund having a maximum allocation to banking and financial services that is more than 25% of the portfolio size.
If we look at its volatility measures that is also astounding
-standard deviation: -13.42%
-Beta: – 0.95
-Sharpe ratio: – 0.90
Fund has given best return in its category, whether it is 3 years or 5 years, every time it has beaten the performance of its category and benchmark. If we had started 10,000 Rs sip in the same fund since inception we would have invested Rs. 14,20,000 but the market value would be near about Rs. 40,11,482 with the rate of return 16.44% annually.
All the funds that I have mentioned are just my own personal reference. ELSS TAX SAVING MUTUAL FUNDS should not be considered as tax-saving instruments only, but you can also add it to your financial planning for long periods of time so that you could accumulate good corpus for your goal plans.
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