ELSS Funds In 2016

By Sanesh Mathew | May 12, 2016

Top 5 ELSS Funds For 2016

Looking to save on your taxes while creating wealth for the long-term? ELSS funds could be a good option. Investments made in these funds qualify for an income-tax rebate of up to Rs. 1,50,000 under Section 80C. Before you take the plunge, it might be a good idea to understand exactly what ELSS funds are.

What are ELSS funds?

ELSS or an Equity Linked Savings Scheme is a type of diversified equity fund which comes with the dual benefit of a tax rebate and wealth creation. Along with tax savings every year, this investment instrument is also ideal for achieving your future financial goals. These goals could be anything from buying a house to planning your retirement.

Why ELSS funds?

Let us tell you why investing in ELSS funds is a smart option.

  • Though not fixed or guaranteed, ELSS funds do provide higher returns than the other tax-saving schemes under section 80C, like PPF and NSC.
  • ELSS funds also have the lowest lock-in period of three years, unlike the other tax-saving investment options listed under section 80C.
  • These funds offer a dividend option which gives you a regular income during the lock-in period.
  • You can choose to invest in an ELSS fund through a Systematic Investment Plan (SIP) if you don’t have enough money to make a lump-sum investment at once.
  • ELSS funds are also the most tax efficient of the 80C options available. Dividends paid from these investments are completely tax-free, and capital gains received at the end of the three-year lock-in period are completely exempt from tax as well as they qualify as long-term capital gains from equity instruments.

Here is a list of some ELSS funds which you can invest in in the current market scenario.

Axis Long-Term Equity Fund

Ranked No.1 in the ELSS category by CRISIL (as of Mar ’16), the Axis Long-Term Equity Fund has recorded a phenomenal performance in the past 5 years. It has garnered returns of around 19% p.a. This fund invests primarily in the banking/finance and automotive sectors. The one reason you should invest (and preferably have it be a long-term investment) in this open-ended ELSS fund is its consistent performance in all market conditions.

Franklin India Tax Shield

If you’re new to equity investing and you want to save on tax, then the Franklin India Tax Shield ELSS fund is a good option. Thanks to its consistent and low volatile performance, this ELSS fund finds itself a spot in the top 5 funds for the year. The Franklin India Tax Shield fund is one of the oldest ELSS funds and has a proven track record in all market phases. It is best suited for the conservative investor with a moderate risk profile. This fund stands at second position in CRISIL’s ELSS ranking (as of Mar ‘16).

Tata India Tax Savings Fund

The Tata India Tax Savings Fund is ideal for investors who seek income-tax relief (under Section 80C) and long-term capital gains. A major highlight of this fund is that it performs better than most other ELSS funds in volatile markets. This open-ended fund currently holds the No.2 position in CRISIL’s ELSS ranking.

ICICI Pru Long-Term Equity

Launched in 1999 and earlier referred to as ICICI Prudential Tax Plan, this fund has had the opportunity to prove itself in different markets over the years. Though highly volatile and aimed at investors with a high-risk appetite, this fund yields superior returns in the long-term. So, if you’re planning to invest long-term, then the ICICI Pru Long Term Equity fund is an option to consider. It is currently at the No.3 position in CRISIL’s ELSS ranking.

BNP Paribas Long-Term Equity Fund

With a diversified portfolio across sectors, the BNP Paribas Long-Term Equity Fund is perfect for long-term capital growth along with tax savings. For the Mar ’16 quarter, this fund ranked third in CRISIL’s ELSS rating. Its consistency and good performance record make it a worthy fund for investors with a moderate risk appetite.

ELSS funds are a perfect blend of tax-saving and equity, making them an invaluable investment instrument for all types of investors. However, as with any investment, be cautious, do your due diligence and assess the risk before investing.

Additional Reading: Public Provident Fund vs. Equity Linked Savings Scheme

Have an opinion about ELSS investments? Do you think they are the best tax-saving instrument under Section 80C? Leave a comment, we’d love to hear what you have to say!

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