Looking to invest in ELSS Mutual Funds that help you save taxes? Here’s a list of funds you can consider.
In the movie ‘After Earth’, Will Smith’s son Jaden Smith (playing the character Kitai) jumps off a mountain cliff just to reach his destination in a fraction of the time it would have taken if he had climbed down the mountain. And yes, he lands in one piece. What wouldn’t you give to similarly accelerate your returns in the stock market, yet not burn your fingers with a bad move? It’s actually simple.
Equity Linked Savings Schemes (ELSS) with their tax efficiency and impressive returns are usually part of every tax payer’s plan. It also offers liquidity with the lowest lock-in period of three years among the investment options available under Section 80C.
While ELSS funds offer a number of benefits, if you end up choosing a wrong fund, it could end up having an unpleasant experience. Equity-linked funds usually do not guarantee any returns, but past performance and other important factors such as the portfolio of the fund can be used as a yardstick to shortlist the best Mutual funds.
Here are five picks for taxpayers to consider in 2018.
ELSS Funds at a Glance:
ELSS Funds are diversified-equity Mutual Funds offering tax deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. You can choose either the growth or dividend option. All returns from ELSS funds are tax-free since long-term capital gains from equity investments are tax-free.
Top Five ELSS Options for 2018:
IDFC Tax Advantage (ELSS) Fund (G)
This is an open-ended growth fund and has a track record of 9 years. CRISIL has given this fund 5 stars. This is fund is also rated 5 stars by MorningStar. The fund has given 21.47% returns over the last five years, making it one of the best-performing ELSS funds. The minimum investment for IDFC Tax Advantage is Rs. 500 and it comes with no exit load. The fund invests in multiple sectors including 21.30% in banking, 11.02% in automotive and 10.39% in engineering sectors as of November 30, 2017.
Reliance Tax Saver (ELSS) Fund (G)
Reliance Tax Saver (ELSS) Fund is an open-ended growth fund assuring long-term capital appreciation. This fund has also been ranked as number 3 in the ELSS category by CRISIL (for the quarter ended September 2017). It has given 22.93% returns in the last five years making it one of the top five best-performing ELSS funds. Reliance Tax Saver (ELSS) Fund has been consistently beating most of its peer Mutual Funds and their benchmarks with 17.07% allocation in the automotive sector, 10.70% in engineering and 19.25% in banking and finance.
DSP BlackRock Tax Saver (G)
DSP BlackRock Tax Saver is a fund that has a track record of more than a decade. It is ranked 3 in the ELSS category by CRISIL. The fund has been given returns of 20.43% in the last five years. DSP BlackRock Tax Saver is an open-ended growth fund with a minimum investment size of Rs. 500. The fund had a majority of its holdings in the banking and finance sector at 32.47%, as on November 30, 2017.
Aditya Birla SL Tax Relief (G)
Aditya Birla SL Tax Relief is an open-ended ELSS growth fund which returned 21.83% in the last 5 years. The fund has been rated 5 stars by MorningStar and 4 stars by CRISIL. The fund has been ranked 2 in the ELSS category by CRISIL. The fund has an allocation of 16% in the automotive sector, 13% in the banking and finance sector and 9% in the consumer non-durables sector.
SBI Magnum Tax Gain (G)
SBI Magnum Tax Gain, just like other ELSS funds, is an open-ended growth-oriented fund offering the benefit of investment in a portfolio of equity investments while offering tax deduction under Section 80 C. This scheme has been ranked 5 in the ELSS category by CRISIL for the quarter ended September 2017. SBI Magnum Tax Gain has been returned 17.40% annualised returns in the last five years, making it a good ELSS scheme to consider. The allocation by the fund includes 30.20% in the banking and finance sector, 11.95% in engineering and 8.04% in oil and gas.
All the above 5 funds are available on the BankBazaar Mutual Fund platform.
There is no doubt that ELSS funds are the preferred investment choice compared to other tax-saving investment options under section 80C, but investors need to be careful while picking the right ELSS plan if they want the best returns at some with lower risks.
Here are some tips you could follow.
- Though ELSS Mutual Funds have a low lock-in period, consider holding on to them for 5 or more years. This will give you good risk-adjusted returns.
- Opting for SIP in ELSS or the dividend reinvestment option may lock your funds up for a longer period, as every installment or re-investment in ELSS is considered as a separate investment and lock-in will apply for each of them.
- If you cannot afford one-time investments, try quarterly investments.
- Different funds invest in different sectors. Pick funds that invest in sectors that you follow or you know well.
Remember, you can be a Kitai in the Mutual Fund world. You just need his magic suit which helped him ride the rough air currents with aplomb and land miles away safely. In the Mutual Fund world, ELSS is your magic suit.