Wednesday, 20 June 2018

3 Best Tax Saving Mutual Funds to Invest in 2018

Posted by RaviKumar Nama
(Published on 20-Jun-2018)
Many people think the tax planning exercise is at the end of financial year. Most of these people don't know how to save the tax by earning inflation-beat returns. The so called Insurance agents luring these Investors by showing attractive tax returns on papers and subscribing them to the low-earning investment products. As the customers have no time to think about Tax saving products, they are applying to these Insurance products (mainly Endowment Insurances, Money Back Insurances etc.) and ending up with low earnings. So, experts suggest that every Investor should start their Tax Planning exercise at the beginning of the Financial year. It gives enough time to study the products and will choose right products.



Why to Choose Tax Savings / ELSS Mutual Funds:

Equity Linked Saving Schemes or ELSSs (also known as Tax Saving mutual funds) are the proved products for Tax savings. These Mutual funds not only give you tax deductions of up to Rs 1.5 lakh under Section 80C but also giving Inflation-beat returns. A good Tax Saving Mutual fund has been giving 20+ % (for 5 years) and 12+ % (for 3 years) yields which are better than any other Tax saving products. Generally, all Tax Saving Mutual funds having 3-year lock-in period. Hence, Fund Manager having enough space to allocate the funds to target portfolios. What are the best Tax Saving Mutual funds to invest for the purpose of Tax savings? Based on some parameters, I have finalized 3 best Tax Saving Mutual funds to invest for Tax Saving purpose.

Parameters in Choosing These 3 Tax Saving Mutual Funds:


  1. Age of the fund: I have chosen the funds which are exists since 10+ Years. This period is sufficient to understand the Fund performance at all Market conditions.
  2. Track Record: I have considered the last 5 years performance and selected having more and better consistent performance.
  3. Fund Houses: I have chosen the funds that are from Big fund houses and having all categories of Mutual funds. This will give flexibility to the customer for switching the Mutual funds, if he/she wants.
  4. Yieldings: I have considered the funds that have given Inflation-beat returns at all time cycles.
  5. Rating of the Fund: I have selected only 5-star or 4-star rated funds which are maintaining from the last couple of years.

3 Best Tax Saving or ELSS Mutual Funds to Invest:

Aditya Birla Sun Life Tax Relief 96

This is one of the oldest and best consistent performer in ELSS category. The performance of this fund has been improved significantly since 2014. The fund follows a multi-cap, bottom-up strategy. It uses a 360 degree view of a company in order to invest in compelling businesses, without any market-cap bias. The fund holds almost 50% of quality Mid-caps in its portfolio and the remaining Large-cap and Small-cap stocks. The fund manager is Ajay Garg and has been since 2006. Top 5 sectors include Finance, Healthcare, Auto, Services and FMCG. Honeywell Automation, Gillette, Bayer Corp, Sundaram-clayton, HDFC are the few companies in its portfolio. Coming to performance, the fund has been yielding 22.63% from the last 5 years and 14.36% from the last 3 years. Overall, this is my first choice in ELSS category.


Axis Long Term Plan: 

This is also one of the most consistent performer in ELSS Mutual fund category. The scheme aims to generate regular long term capital growth from a diversified portfolio of equity and equity related securities. Since its inception, it has been maintaining top rating (4-star or 5-star) and has delivered convincing out-performance of both its benchmark and peers in most bull years. The selection of funds basically depends on the superior and scalable businesses, a high return on capital and secular growth. Almost 95% of its portfolio consists Equity oriented and the remaining Debt related products. Top 5 sectors includes Financial, Auto, Chemical, Tech and Services. Companies like HDFC Bank, TCS, Kotak Mahindra Bank, Pidilite and HDFC are top 5 stocks in its portfolio. From the last 5 years it has given 23% returns and from the last 3 years it has yielded 12.50% returns which are higher than its category.



IDFC Tax Advantages:

This fund is one of the more aggressive ELSS fund in its category. The mid & small-cap stock allocation ranges from 35% to 50% and the remaining in Large-cap. Hence, the risk is more when compared to above 2 Mutual funds. Since 2010, the fund has been beating the benchmark every year. Finance, Auto, Services, Tech and Constructions are the top 5 sectors in its Portfolio. Stocks like HDFC Bank, ICICI Bank, Future Retail, RBL Bank, Infosys, MRF etc. are in its Portfolio. It has been yielding 21 % from the last 5 years and 12+% from the last 3 years. The aggressive portfolio gives higher returns at higher risk.


Conclusion:

The SIP approach is the best approach to invest into Tax Saving Mutual funds for long term. Invest as small as Rs. 500 to your affordable limit systematically. This will give you not only Tax benefits but also higher returns.

0 comments:

Post a Comment