Best ELSS Mutual Funds

We are approaching the end of the financial year 2020-21. It is that time of the year when investments are made in tax-saving instruments to avail Section 80C benefits under the Income Tax Act 1961. The best available option is the ELSS mutual funds having the least lock-in period of three years.

In this article, we will explore ELSS Tax Saving Mutual Funds and talk about all the aspects that you need to know about them.

What is ELSS Fund?

Equity Linked Savings Scheme (ELSS) is a mutual fund scheme that invests in equity and equity-related instruments. Investing in ELSS Mutual Funds makes you eligible for a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act 1961.

As compared to other tax-saving schemes, these funds have the shortest lock-in period of three years from the date of the unit’s allotment. Once the lock-in period is over, the units are free to be redeemed or switched.

To qualify as an equity mutual fund from a taxation point of view, all equity mutual fund schemes need a minimum of 65% investment into equities, whereas ELSS mutual funds need a minimum of 80% equity investment.

Investments in ELSS can be made through lump-sum payments or SIP. If investments are made through SIP, the lock-in period of 3 years is taken for each SIP.

        Features and benefits of ELSS Mutual Funds

benefits of ELSS Fund
benefits of ELSS Fund
  • Mutual funds are managed by professional fund managers who have the required skills, vast experience, and a well-organized team to maximize your investment returns.
  • Earnings are taxed only at 10% of the gains (Long Term Capital Gain). As minimum holding period is three years.
  • To know more about capital gain tax please read Mutual Fund Taxation: How it works & Important rules
  • The lock-in period of three years is the shortest of all Section of 80C instruments.
  • ELSS mutual funds have the potential to offer much higher returns than other tax-saving instruments such as PPF, NSC, tax-saving FD, and insurance.
  • Investors can invest as much as they wish because there is no capping on investment.
  • Investors need not have in-depth knowledge of the equity markets.

Who should invest in ELSS funds?

Any individual or HUF can invest in ELSS funds through SIP or lumpsum method. ELSS is more suitable for those who have a long-term investment horizon, preferably more than 3 years.

ELSS mutual fund schemes mostly invest in equity instruments that can offer exceptional returns in the longer-term.

Since equity allocation is very high (Minimum 80 %) volatility and risk associated with this type of funds are also high. It also requires a good understanding of equity and equity-related instruments from the investor.

ELSS scheme is best suited for young investors as they have more time on their side to unleash the power of compounding to the fullest and enjoy high returns while saving on taxes.

Why should you invest in ELSS  Mutual Funds?

ELSS Mutual Funds are most suitable for aggressive investors who are looking for wealth creation opportunities over the long run. Since these funds have a compulsory lock-in period of three years, you should be ready to stay invested for a longer duration and structure your financial plan and goals accordingly.

In addition to that, by investing in ELSS Mutual funds, one can claim to benefit up to 1.5 lakhs under section 80 C of the income tax act 1961.

There is no capping on investment and you can also stay invested after the stipulated lock-in period of 3 years for as long as you want.

If you are in the highest tax bracket, you should invest in these funds to save taxes. Because the long-term capital gains up to Rs 1 lakh are tax-free.

Moreover, the gains exceeding Rs 1 lakh are taxed at the rate of 10% as the minimum holding period is three years. There are no short-term capital gains in the equity link savings schemes.

You may invest in ELSS Funds to reach your financial goals like children’s higher education, children’s marriage, purchasing of house, creating retirement corpus, and other long-term goals.

As compared to other funds, the fund manager of an ELSS Fund is better positioned to take comprehensive bets on sectors as well as the market due to the three-year lock-in period.

It resulting in a higher return on investment and lower volatility for the investors. Historically, ELSS funds have known to deliver superior returns. They have generated average returns of around 12%-15% for a period of more than 5 to 7 years.

While selecting a fund, you need to analyses the funds in detail.  Various quantitative and qualitative parameters can be used to arrive at the best ELSS funds.

You should also need to consider your financial goals, risk appetite, and investment horizon in mind before selecting a fund. While analyzing the different funds in this category we came with 3 best ELSS funds which is most suitable to all investor.

             Axis Long Term Equity Fund review

Axis Long Term Equity Fund is a Tax saving mutual fund scheme. The fund was launched on 29th Dec 2009.

 Axis Long Term Equity Fund is one of the best performers in the ELSS category.

The scheme has scored well in providing superior returns in the longer time frame. The fund has generated 18.19 % CAGR in the last 10 years which is really amazing!

The scheme’s fund manager Mr. Jinesh Gopani has been managing the scheme since 2011.

In terms of portfolio composition, the fund has invested close to 84.35% in blue-chip and large-sized companies and 13.90% of the portfolio is invested in mid-sized companies.

Axis Long Term Equity Fund is one of the oldest ELSS funds and the largest in terms of AUM.

Since its inception, Axis Long Term Equity fund has been functioning more or less like a Large cap fund in terms of investing style and allocation.

Let’s have a look at the detailed composition of the scheme:

              Axis Long Term Equity Fund

Fund House Axis Mutual Fund
Launch Date 29/12/2009
Benchmark S&P BSE 200 TRI
AUM ₹ 27,216 Cr
Fund Manager Mr. Jinesh Gopinath Since April 2011
Expense ratio 1.61
Riskometer Very High
NAV Rs 62.6588

  

Portfolio Aggregates
Number of Stocks: – 32 FUND (%) Category (%)
Giant 59.08 52.08
Large Cap 25.27 14.42
Mid Cap 13.90 24.89
Small-Cap 1.75 8.59
Tiny 0.00 0.19

 

Returns In %
6 Months 1 Year 3 Years 5 Years 7 Years 10 Years
34.18 41.86 15.52 17.02 19.09 18.19

 

Top Ten Holdings

Company Sector % Assets
Bajaj Finance Financial 9.27
Avenue Supermarts Services 7.57
Tata Consultancy Technology 6.87
Info Edge (India) Services 6.87
HDFC Bank Financial 6.52
Kotak Mahindra Bank Financial 6.45
HDFC Financial 5.64
Nestle India FMCG 5.10
Maruti Suzuki India Automobile 4.58
Pidilite Industries Chemicals 4.06

 

DSP Tax Saver Fund review

DSP Tax Saver Fund is a Tax saving mutual fund scheme. The fund was launched on 18th Jan  2007.

DSP Tax Saver Fund is one of the best performers in the ELSS category.

The scheme has scored well in providing superior returns in the longer time frame. The fund has generated a 15.26 % CAGR in the last 10 years which is superb!

The scheme’s fund manager Mr. Charanjit Singh has been managing the scheme since 2021.

In terms of portfolio composition, the fund has invested close to 66 % in blue-chip and large-sized companies and 34% of the portfolio is invested in mid-sized companies. MID and small allocation is more in this fund.

DSP Tax Saver Fund is one of the oldest ELSS funds.

Let’s have a look at the detailed composition of the scheme:

DSP Tax Saver
Fund House DSP Mutual Fund
Launch Date 18/01/2007
Benchmark Nifty 500 TRI
AUM Rs 7883 Cr
Fund Manager Mr. Charanjit Singh Since Jan 2021
Expense ratio 1.85
Riskometer Very High
NAV Rs 66.36 ( As of 14/03/2021)

 

Portfolio Structure

Number of Stocks:- 59 FUND Category
Giant 48.57 52.08
Large Cap 17.78 14.42
Mid Cap 24.76 24.89
Small-Cap 8.89 8.59
Tiny 0.00 0.19

 

Returns In %

6 Months 1 Year 3 Years 5 Years 7 Years 10 Years
37.46 57.16 13.53 17.31 18.14 15.26

  

Top Ten Holdings

Company Sector % Assets
Infosys Technology 8.08
ICICI Bank Financial 7.60
HDFC Bank Financial 7.25
Bharti Airtel Communication 4.53
Axis Bank Financial 4.00
State Bank of India Financial 3.60
Hindustan Unilever FMCG 2.87
Tata Steel Metals 2.79
Ultratech Cement Construction 2.34
Dr. Reddy’s Lab Healthcare 2.23

 

  Mirae Asset Tax Saver Fund review

Mirae Asset Tax Saver Fund is a Tax saving mutual fund. The fund was launched on 28th Dec 2015.

 Mirae Asset Tax Saver fund is one of the best performers in the ELSS category.

The scheme has scored well in providing superior returns in the longer time frame. The fund has generated 22.49 % CAGR in the last 5 years which is really great!

The scheme’s fund manager Mr. Neelesh Surana has been managing the scheme since 2015.

 In terms of portfolio composition, the fund has invested close to 70% in blue-chip and large-sized companies and 30 % of the portfolio is invested in mid-sized companies.

Let’s have a look at the detailed composition of the scheme: 

Mirae Asset Tax Saver- Regular 9Growth)
Fund House Mirae Asset Mutual Fund
Launch Date 28/12/2015
Benchmark Nifty 200 TRI
AUM Rs 6351 Cr
Fund Manager Mr. Neelesh Surana Since 2015
Expense ratio 1.83 %
Riskometer Very High
NAV Rs 25.98 ( As of 14/03/2021)

 

Portfolio Structure

Number of Stocks:- 60 FUND (%) Category (%)
Giant 55.72 52.08
Large Cap 14.21 14.42
Mid Cap 21.71 24.89
Small-Cap 8.36 8.59
Tiny 0.00 0.19

 

Returns In %

6 Months 1 Year 3 Years 5 Years 7 Years 10 Years
37.23 69.89 17.37 22.49 NA NA

  

Top Ten Holdings

Company Sector % Assets
HDFC Bank Financial 9.34
Infosys Technology 7.05
ICICI Bank Financial 7.01
Axis Bank Financial 4.66
Tata Consultancy Services Technology 4.31
State Bank of India Financial 3.10
Reliance Industries Ltd – Partly Paid Equity Energy 2.99
Bharti Airtel Communication 2.90
Maruti Suzuki India Automobile 2.54
JK Cement Construction 2.47

 Final Thoughts

The ELSS Mutual funds scheme is an ideal choice for those investors who are looking to save their taxes and to gain higher returns.

Sometimes it becomes very difficult to select the right fund because of a wide range of available schemes. That’s the reason we came with the best three who are having an excellent track record.

ELSS is one of the best equity-based investment plans. Out of Rs.1,50,000 deduction available under section 80C, at least 50% of it must come from ELSS.

Plz also read:Liquid Funds: Top 5 liquid Funds to invest in India: 2021

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3 COMMENTS

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