Tuesday, 30 May 2017

Top 3 Tax Saving / ELSS Mutual Funds in 2017

Posted by RaviKumar Nama
(Published on 30th May 2017)
Most of the people think that Investments for Tax savings will be done at the end of the financial year and used to take wrong investment products in hurry to save the tax for that year. Exactly at this point, the agents of various Insurance companies enter and lure the customers with extra-ordinary promises and will sell out their expensive Insurance products. These Insurance products will not help you out in not only saving your tax but also dent your pockets with huge premiums every year. It is always advisable to think about  your Tax saving products at the beginning of the financial year. This approach will give you ample time to identify the right product. But, what are the good options available for Tax saving in the market which not only save your tax but also provide good yieldings in the long run?

Common Mistakes in Identifying the Tax Saving Products:

  1. Selecting the Insurance products like Endowment policies or Money-back policies for Tax saving purpose.
  2. Selecting the products which will provide only Tax benefits but not the returns.
  3. Selecting the products with high premiums to save more tax.
  4. Thinking about the Tax Saving Product in the last quarter of the financial year. 

What are Tax Saving / ELSS Mutual Funds?

Tax Saving or ELSS (Equity Linked Savings Scheme) Mutual fund is an Open-ended Equity Mutual fund that doesn't just help you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act.

Top 3 Tax Saving / ELSS Mutual Funds in 2017:

Based on some parameters like the previous track record for the last 5 years, Consistency in performance, Fund House name and Portfolio, I have identified the following 3 Mutual funds are the best in ELSS/Tax Saver Mutual fund category.

1. DSP BlackRock Tax Saver Fund:

This is my top priority in Tax Saving / ELSS Mutual Fund category. This fund has been performing consistently from the last 6 years. Also, this fund has out performed the benchmark category from the last 8 - 9 years. The portfolio of this 
fund consists like this: 75% in Large-cap, and the remaining in Mid and Small cap stocks. The major portion is towards 
large-cap stocks indicating it is suitable to conservative investors. Top 5 sectors that holding are Financial, Energy, 
Automobile, Construction and Metals. All these sectors are promising sectors in the coming days. Top 5 holdings are SBI, GAIL, ICICI Bank, L&T and Yes Bank. From the last 5 years this fund has been giving 22.61% yieldings which is compared to any other Open-ended equity fund. Apart from this, all your investments are subjected to tax exemptions under section (u/s) 80C of the Indian Income Tax Act. Hence this fund is best suitable for any kind of investors who wanted tax exemptions along with higher yieldings.



2. IDFC Tax Advantage (ELSS) Fund:

This is my second choice in the Tax Saver / ELSS Mutual fund category. This fund has been consistently beating its bench mark since its inception. The major portion of its portfolio  towards Mid and Small Cap stocks. Hence, this fund is suitable for aggressive investors who can invest for long term through SIP approach. Approximately 55% - 70% allocations are in Mid and Small cap stocks and the remaining in Large cap stocks. Since last 5 years it is giving approximately 20% returns and the last year performance is 27.94%. As the major portion towards Mid and Small cap stocks, the performance levels are not that much consistent when compared to DSP BlackRock Tax Saver Fund. Hence, this is suitable for aggressive investors only. Top 5 sectors are Financial, Services, Automobile, FMCG and Construction. Top 5 stock holdings are HDFC Bank, ITC, ICICI Bank, Ramco Industries and Future retail. All these sectors are going to continue their good performance in the coming years. Hence, we can see good performance in this Mutual fund.



3. Axis Long Term Equity Fund: 

This is my next choice in ELSS / Tax Saver Mutual fund category. It's consistent performance levels since inception making this Mutual fund into my selection. It has been maintaining 5-star rating since inception by Value Research. Careful crafting of its portfolio with good stocks having superior and scalable businesses, a high return on capital, and secular growth making this fund one of the best in its category. Though the last year performance is below its category, but the last 5 years it has been giving 24.15% yieldings to the investors. Top 5 sectors includes Financials, Automobiles, Chemicals, Consumer Durable s and Healthcare. Top 5 stocks in its holding are Kotak Mahindra Bank, HDFC Bank, HDFC,  L&T and Maruti. This is one of the safest Mutual fund those who wanted to invest for not only the Tax saving but also for the higher consistent  yieldings.



Do's and Don't While Investing in Tax Saving / ELSS Mutual Fund:

  1. Start your SIP in Tax Saving / ELSS Mutual Fund at the beginning of a Financial Year instead of waiting for the last quarter.
  2. Choose a good Tax Saving / ELSS Mutual Fund and invest into it through SIP approach for long term. Do not change fund on every new year.
  3.  A Tax Saving / ELSS Mutual Fund invests a portion of their corpus into equities. Equities need five-seven years to show good returns, so don't pull your money out as soon as the lock-in ends after three years.
  4. Choose a Tax Saving / ELSS Mutual Fund having consistent performance from the last 5 years. Do not choose the top performer of that year.
  5. Choose the right kind of Tax Saving / ELSS Mutual Fund based on your risk appetite. Some Tax Saving / ELSS Mutual Funds invest in Large-cap stocks and some in Mid and Small cap stocks. Check the portfolio of the Mutual fund before investing.
  6. Choose the Tax Saving / ELSS Mutual Fund having diversified portfolio.
  7. Go with Systematic investment approach instead of lump-sum investment in Tax Saving / ELSS Mutual Funds.

Conclusion:

You should not club your insurance requirements with Tax savings. These products are expensive and the insurance provided by these products are very minimal. Hence, for Tax saving purpose, I suggest should go with the above mentioned Mutual funds based on your risk appetite. All these 3 Tax Saving / ELSS Mutual Funds are the best in their category and will continue their performance levels in the coming years also.

7 comments:

  1. Hi Ravi, Nice article. I want to ask a simple question. Which one is the best way to invest in ELSS through SIP or lumpsum?

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  2. ELSS is suitable for SIP. However, you can also invest lumpsum but make sure that you cannot withdraw with in 3 years as ELSS are mostly close-ended Mutual funds and they have 3-year lock-in period.

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  3. Good article RaviKumar . I totally agree with your points regarding to the Tax Saving SIP Investment. One of the main benefit of SIP is that you can start investing in SIP from the range of RS. 500/1000.

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    1. Thanks Avinash for your comments and inputs. Yes, investing through SIP approach is best way of investing. Long run you will get benefit of compounding and will see handsome returns at the end.

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  4. Good Article. thanks for your effort give info about mutual funds.

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    Replies
    1. Thanks Amol for your inputs on my article. You will see many more useful posts on this blog in the coming days. Keep watching.

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