Are you planning to invest in Equity Linked Savings Schemes (ELSSs) in this tax saving season? If your financial goals are great returns, mediocre risk, and tax savings under section 80C at the same time, ELSS is for you. There are more than 80 schemes available for ELSS and it is difficult for many investors to choose the best ELSS funds. In this article, we have handpicked the best ELSS funds to invest in 2018, how we selected the Best ELSS Funds, Comparison of Best ELSS Funds, Review of Best ELSS Funds
Table of Contents
Best ELSS Funds to Invest
There are around 42 different ELSS Funds on offer, 84 funds if you consider Direct plans. The images below show Top ELSS funds based on performance and also based on how much assets they have.
Top ELSS funds based on the assets. Reliance Tax saver fund figures in both returns and asset size.
What is ELSS?
An overview of ELSS Funds is given below. For more details, you can check our article Understanding ELSS Funds
- ELSS is diversified equity mutual funds where 65% or more is invested in equity.
- They are tax-saving investment instruments and fall under EEE (Exempt-Exempt-Exempt) category where these investments enjoy deduction under section 80C of the Income Tax Act. Under section 80C, an individual can invest up to Rs. 1.5 Lakhs in a set of investments and ELSS constitutes one of these instruments and you don’t have to pay tax if individual investment or total investment in category 80C does not exceed Rs. 1.5 Lakhs. The long term capital gains generated by the fund are also exempt from tax as the investments are not withdrawn. Finally, withdrawals are also tax-free because there is no tax payable on long-term capital gains from equity-oriented mutual funds and the holding for ELSS is more than 3 years.
- These funds have a lock-in period of 3 years which is the least in contrast to other options in the market.(PPF’s lock-in period is 15 years, Tax saving Bank Fixed Deposit’s lock-in period is 5 years while National Saving Certificate’s lock-in period is 5 years etc.) For the investors who opt for the SIP route, each monthly installment is treated as a separate investment and gets locked in for three years. So, the SIP started in Oct 2014 will be eligible for withdrawal in Oct 2017. Check our article
What to consider before investing in ELSS Funds?
- Do not invest only for the sake of saving tax. Invest in ELSS funds if you have a financial goal and do not aim to invest for less than 5 years. If your aim is less than 5 years, opt for debt products. If your goal is more 5 years and above opt for ELSS funds.
- It is not recommended to invest in ELSS funds at the end of the year as lump sum, because it is observed that bunching ELSS investment as lump-sum into the last few months of the financial year yield lower returns.
- Like all investments, one of the most convenient ways to invest in ELSS is through monthly SIPs throughout the year. Beginning of the year, estimate the amount that you might have left over and above Rs. 1.5 Lakhs after statutory deductions and divide by 12 to arrive at a suitable SIP.
How to select best ELSS Funds?
- Based on returns: ELSS should give good returns in the longer period. Select funds that have given above average returns in the past 3 years and to be even more precise look at returns for the past 5 years.
- Based on risk: ELSS funds cannot be judged only on returns as equity market is volatile. As there is no guarantee for return, it is vital to analyze the risk along with returns. Volatility determines the risk of a particular fund. Volatility should not be more than market average to qualify as the best fund. Simultaneously, the ups and downs of the funds should also not be extreme. Volatility can be measured by beta. Lower beta indicates lower volatility. We will calculate the risk based on Sortino ratio, where 3 years return is divided with annual returns to judge the return of the fund during the downfall. Higher the Sortino Ratio, better is the fund.
- Based on portfolio allocation: If a fund invests in large and growth-oriented companies, it is an indicator of the consistent performance of the ELSS funds. Investment if funds in big companies generally fall less as compared to investment in mediocre companies during market decline.
- Based on Assets Under Management (AUM): If AUM is greater than 300 crores, it is said to be a safer investment as compared to funds whose investment is not greater than 300 crores.
- Based on rankings: Crisil gives funds certain ratings such as Rank 1/2/3 depending on the quality of the funds after assessing innumerable factors by their in-house team. Funds that are rated as Rank 1/2/3/4 are generally considered to be a good choice for investment. We have also check Value Research Ranking to get an estimate about funds that are best according to VRO.
CRISIL Mutual Fund Ranking Category Definitions
Category Interpretation CRISIL Fund Rank 1 Very Good performance in the category (Top 10 percentile of the universe)* CRISIL Fund Rank 2 Good performance in the category CRISIL Fund Rank 3 Average performance in the category CRISIL Fund Rank 4 Below average performance in the category CRISIL Fund Rank 5 Relatively Weak performance in the category
* If the top 10 percentile figure is not an integer, the same is rounded off to the nearest integer. The same approach is adopted for CRISIL Fund Rank 2 (11th to 30th percentile), CRISIL Fund Rank 5 (last 91st to 100th percentile) and CRISIL Fund Rank 4 (71st to 90thpercentile) clusters. The residual funds in the universe are placed in the CRISIL Fund Rank 3 clus
Best ELSS Funds to invest in 2017
Money is saved by individuals and should be invested wisely for the tax benefit purposes.As ELSS is a great available option to park the funds in the market, it is crucial to know the best funds to not only save tax but to earn returns and appreciate capital. We have analyzed innumerable funds based on above parameters and have curated a list of top most ELSS funds. The image below shows the growth of investment of Rs 10,000 from 16 Jan 2015 to 16 Jan 2017
Table below compares the Various Funds across various parameters
Axis Long Term Equity – Direct (G)
Reliance Tax Saver (ELSS) (G)
IDFC Tax Advantage (ELSS)-RP (D)
ABSL Tax Relief 96 (G)
BOI AXA Tax Advtg -RP (G)
|Ranking||Rank 3||Rank 3||Rank 1||Rank 2||Not Ranked|
Rs in cr
|Inception Date||Jan 01, 2013||Aug 23, 2005||Dec 17, 2008||Mar 06, 2008||Feb 12, 2008|
|Benchmark||BSE 200||BSE 100||BSE 200||BSE 200||S&P CNX Nifty|
|Axis Asset Management Company Ltd.||Reliance Nippon Life Asset Management Limited||IDFC Asset Management Company Private Limited||Aditya Birla Sun Life AMC Ltd.||BOI AXA Investment Managers Private Limited|
Rs in cr
|52 week high||45.644|
Jan 23, 18
Jan 23, 18
Jan 15, 18
Jan 23, 18
Jan 15, 18
|52 week low||32.910|
Jan 24, 17
Jan 24, 17
Mar 02, 17
Jan 24, 17
Jan 24, 17
|Performance Returns as on Jan 25, 18|
* Returns over 1 year are Annualised
|Top 5 holdings||HDFC Bank, Kotak Mahindra, HDFC, Pidilite Ind, Maruti Suzuki||SBI, TVS Motor, Tata Steel, ICICI Bank, Tata Motors||HDFC Bank, Future Retail, ICICI Bank, KEC Intl, Minda Ind||Sundaram-Clayto, Honeywell Autom, Gillette India, Bayer CropScien, Johnson Control||IndusInd Bank, Graphite India, HEG, Minda Ind, Aarti Ind|
top 5 holdings
|Top 3 Sectors||Banking/Finance, Automotive, Chemicals||Banking/Finance, Automotive, Engineering||Banking/Finance, Engineering, Automotive||Automotive, Banking/Finance, Pharmaceuticals||Banking/Finance, Engineering, Automotive|
top 3 sectors
|Management & Fees|
|Fund Manager||Jinesh Gopani||Ashwani Kumar||Daylynn Pinto||Ajay Garg||Saurabh Kataria|
Best ELSS Funds as per MoneyControl
Below are best ELSS funds as per returns on www.moneycontrol.com
Best ELSS funds as per Valueresearchonline
As on Below are best ELSS funds as per www.valueresearchonline.com
Review of Best ELSS Funds
Axis long term equity fund
Launched in December 2009, this open-ended fund tops ever chart. The fund is large-cap oriented as compared to its peers. In the last one year, large-cap weights have been at 65-70 per cent, mid caps at 25-30 percent, with marginal small-cap positions. Consistent performance has led to the fund seeing its asset size burgeon from a mere Rs 4 crore at launch to over Rs 10,487 crore by end November 2016. Axis long term equity fund has not matched the benchmark indices in the last 1 year. It has been lagging behind. But it is here because of overall performance in last 3 and 5 years. Since 2015, there has been a shift in the market cycle in favor of cyclical and beaten-down stocks and sectors. These do not usually figure in the fund’s buy list. This could have slowed its one-year performance.
Birla Sun life tax relief plan 96 G
Launched in March 1996, this open-ended fund is the oldest ELSS fund to invest in. This fund had a great run in the initial years after launch, slipped behind its category, sporting a moderate three-star rating for many years, and has shown promise again since 2012. It follows a multi-cap strategy, with 55-60 percent large-cap exposure and the rest in small and mid caps.The investment philosophy of the fund is to invest in quality companies. This involves selecting companies run by professional managements and which have predictability of earnings and strong moats. The portfolio reveals quite a few unconventional mid-cap picks as top holdings. The fund’s quality bias has also led to a number of MNC stocks figuring among stock choices.
The fund’s year-by-year record since 1998 shows a few bad patches. The fund has struggled in bear markets both in 2008 and 2011, but it has also delivered sharply higher returns than the category in the big bull years of 2007, 2009, 2012 and 2014.
DSP Blackrock tax saver fund
DSP BlackRock TaxSaverFund, launched in January 2007, has delivered nearly 15% returns since inception and is below average low risk fund . The performance of DSP BlackRock TaxSaver Fund has been stronger in the last 5 years. The fund was a top quartile performer in 2012 but slipped a bit in 2013. In 2014 and 2015 DSP BlackRock TaxSaver Fund bounced back into the top 2 quartiles DSP BlackRock TaxSaver Fund has delivered nearly 10 years of strong and consistent performance. The fund consistently beat the benchmark in 3 year rolling returns over the last 5 years. The fund manager has large cap bias and his investment style is growth oriented.
Franklin India Tax shield
Launched in April 1999, this open-ended fund ELSS fund is an iconic favorite fund to invest in. This fund is determinedly large-cap-oriented. The fund’s year-to-year returns don’t always beat its more aggressive peers, but its performance adds up to very handsome returns over the long term. Outpacing the benchmark in 12 of the last 15 years, this fund has proved more adept at containing losses in bear markets. It tends to be rather sober in bull years and trailed peers in 2006-07, 2009 and 2012. The last two years, however, have seen the fund widen its outperformance vis-a-vis the benchmark and the category. The fund’s current large-cap tilt suggests that it would be quite well placed to handle any market correction.
Go for it if you like a less bumpy ride in choppy markets.
Reliance tax saver fund
Launched in September 2005, this open-ended fund ELSS fund is a fund to invest for long term objectives. This is an aggressive fund in the ELSS space, but one that has made timely shifts to keep up with the market’s changing preferences. Though most funds in the ELSS category follow a multi-cap approach, this fund specifically favours mid- and small-cap stocks. The mandate allows a 40-60 per cent allocation to large caps, but in practice, in the last couple of years, the large-cap exposure has hovered at 25 to 45 per cent, with mid caps taking up a 40 per cent plus weight and small caps occupying 15-20 per cent. In the last six months, though, the fund has upped its large-cap weights to nearly half its portfolio, probably due to richly priced mid and small caps. The fund sets aside 20-30 per cent of the portfolio for multinational companies with robust fundamentals. It follows a blend of growth and value investing. The fund’s three-, five- and even seven-year returns are ahead of the benchmark by 7-18 percentage points. In 2015, the fund managed a shift to domestic recovery plays. This timely move has helped it stay ahead of the race in the last one year. Overall, the fund has fared better in tear-away bull markets than in bearish markets.
Note: Please consider these as recommendations only. Please consult your financial advisor.
Do you invest in ELSS Funds? How do you choose ELSS Funds? Which ELSS Fund did you choose and why did you choose that Fund. Please share your fund choosing process.