Tax Saving Mutual Funds - Top 5 ELSS Funds for 2020

Equity-linked savings schemes (ELSS), commonly known as tax-efficient mutual funds, are stock-oriented mutual funds. As per SEBI regulations, ELSS funds must invest more than 80% of their total assets in stocks or stock-related instruments.

Undoubtedly, investment in ELSS gives not only a mutual fund return but also provides tax benefits. In addition to this, it allows you to claim up to Rs. 1.5 lakhs per financial year as tax deduction under section 80C.

In This Article

What are ELSS Funds?
Benefits of Investing in Tax Saving Mutual Fund
Factors to consider before investing in Tax Saving Mutual Funds
5 Best Mutual Funds for Tax Saving
Why to invest with us?

What are ELSS Funds?

ELSS (Equity Linked Savings Scheme) is a closed-end diversified stock plan provided by Indian mutual funds with a lock-up period of 3 years. In fact, they provide tax incentives under section 80C of the new Income Tax Act of 1961.

Along with that, ELSS can invest using SIP (System Investment Plan) and block investment options. Moreover, it has better liquidity compared to other options (such as NSC and provident fund). As a result, most of these funds have a lock-up period of 3 years.

Benefits of Investing in Tax Saving Mutual Fund

The product features of the ELSS plan are superior to other tax-efficient investment options (such as PPF, ULIP, NSC, and tax-efficient bank FD) under Article 80C.

1. Lowest Lock-in period: Firstly, the lock-up period of ELSS funds is only 3 years, which is the lowest of all tax-saving investment schemes that can enjoy the Article 80C deduction. Clearly, ELSS funds provide the highest form of liquidity among all tax-efficient investment options.

2. Higher returns than FD/PPF: Although stocks as an asset class can be very volatile in the short term, nevertheless, they can outperform other asset classes, including the fixed income asset class, by a wide margin in the long term.

3. Option to invest monthly: Moreover, it is easy to invest in ELSS funds through the monthly SIP. You can easily start investing in ELSS with SIP's low investment amount of Rs.500 per month.

4. Best Tax saving investment under Sec 80C: Above all, tax saving is the main reason why ELSS is the best choice for investment. According to Article 80C, if you can invest 150,000 rupees in ELSS every year, you can enjoy a tax benefit of 46,800 rupees.

Factors to consider before investing in Tax Saving Mutual Funds

1. Fund Return: Firstly, before buying a fund, compare the performance of the fund with its competitors and benchmarks to see if it has performed consistently in the past. If a fund performs better than its benchmark or competitors, then the fund will bring high returns.

2. History of the fund house: Secondly, choose your fund house wisely. It is recommended to choose a long-term stable fund company, for example, 5-10 years.

3. Expense Ratio: Thirdly, check the expense ratio. It indicates how much of your investment is used to manage the fund. If the fund's expense ratio is low, it means you can get a higher real return-therefore, it is always better to choose this type of fund.

4. Financial Parameters: Also, consider other ratios (such as standard deviation, Sharpe ratio, Alpha, and Beta) and analyze the performance of the fund. Funds with higher standard deviation and beta are riskier than funds with lower standard deviation and beta. Choose a fund with a higher Sharpe ratio.

5. Fund Manager: Finally, choose a fund manager wisely because he/she is the person who plays a key role in your fund management. A fund manager must be capable and experienced in choosing the right stocks and building a strong investment portfolio.

5 Best Mutual Funds for Tax Saving

1. PARAG PARIKH TAX SAVER FUND

Altogether, the fund has 90.67% investment in Indian stocks of which 44.32% are in large-cap stocks, 15.92% are in mid-cap stocks, 23.09% in small-cap stocks. It also has a 3 year lock-in period from the date of investment for each installment.

Fund Managers :

1. Rajeev Thakkar (since 4 July, 2019)

Education: Mr.Thakkar is a Chartered Accountant, Cost Accountant, CFA, and CFP.

Experience: He has worked with PPFAS AMC since 2013.

2. Raj Mehta (since 4 July 2019)

Education: Mr. Mehta is a B.Com and M.Com from Mumbai University, CA, and CFA Level III Pass.

Experience: Worked as a Research Analyst prior to joining PPFAS AMC. He has experience of over 3 years of in investment research.

Riskometer: Moderately High

2. MIRAE ASSET TAX SAVER FUND

To summarize, this fund has 98.72% investment in Indian stocks of which 58.43% are in large-cap stocks, 18.35% are in mid-cap stocks, 6.93% in small-cap stocks.

Also, these assets have a lock-in time of 3 years and are especially perfect for investors with a higher risk appetite.

Fund Managers :

Neelesh Surana (since 20 November 2015)

Education: Mr. Neelesh Surana has done B.E (Mechanical) and MBA in Finance.

Experience: Before joining Mirae AMC he was working with ASK Investment Managers Pvt Ltd.

Other Funds Managed:

Mirae Asset Emerging Bluechip Fund

Mirae Asset Hybrid Equity Fund

Riskometer: Moderately High

3. AXIS LONG TERM EQUITY FUND

In short, the fund has 93.44% investment in Indian stocks of which 62.94% are in large-cap stocks, 16.49% are in mid-cap stocks, 5.66% in small-cap stocks.

Moreover, the fund has 0.13% investment in Debt of which, 0.13% is in funds invested in very low-risk securities.

Undoubtedly, it has the potential to beat inflation and generate long-term wealth.

Fund Managers :

Jinesh Gopani (since 1 April 2011)

Education: Mr. Gopani has completed B. Com (H) and MMS from Bharati Vidyapeeth Institute of Management Studies and Research.

Experience: Before joining Axis AMC he was working with Birla Sun Life AMC, Emkay Shares & Stock Brokers Limited, Voyager India Capital Pvt. Ltd and Net worth Stock Broking Limited.

Other Funds Managed:

Axis Focused 25 Fund

Axis Retirement Savings Fund

Riskometer: Moderately High

4. SBI LONG TERM EQUITY FUND

To sum up, this fund has 96.69% investment in Indian stocks and it has a portfolio with 64.93% in large-cap stocks, 16.81% in mid-cap stocks, 11.27% in small-cap stocks.

As a result, it is suitable for investors who are looking to invest money for at least 3 years.

Additionally, investors looking for benefits of income tax saving apart from higher return expectations can invest here.

Fund Managers :

Dinesh Balachandran (since 10 September 2016)

Education: Mr.Dinesh has completed B.Tech from IIT-B, M.S. from MIT USA, and CFA.

Experience: Before joining SBI Funds Management Pvt. Ltd. he was working with Fidelity Investments, USA.

Other Funds Managed:

SBI Dynamic Asset Allocation Fund

SBI Contra Fund

Riskometer: Moderately High

5. KOTAK TAX SAVER REGULAR PLAN

On the whole, the fund has 95.1% investment in Indian stocks of which 53.89% are in large-cap stocks, 25.21% are in mid-cap stocks, 8.55% in small-cap stocks.

Hence, the investment objective of this fund is to generate long-term capital appreciation from a diversified portfolio of equity and equity-related securities and enable investors to avail themselves of the income tax rebate.

Fund Managers :

Harsha Upadhyaya (since 25 August 2015)

Education: Mr. Harsha Upadhyaya has completed B.E (Mechanical) from NIT Suratkal and PGDM from IIM Lucknow. He has also completed CFA from the CFA Institute, USA.

Experience: Before joining Kotak Mutual fund he was working with DSP Mutual Fund and UTI AMC.

Other Funds Managed:

Kotak Equity Opportunities Fund

Kotak Standard Multicap Fund

Riskometer: Moderately High