Top Five Tax Saving Mutual Funds to Consider Right Now

With barely five months left in the fiscal, many of you will be considering various options to plug your Section 80C shortfalls from the permitted maximum deduction of Rs. 1.5 Lakhs. Tax Saving Mutual Funds can prove to be a very useful option, compared to lower return instruments such as Tax Saving FD’s or Life Insurance.

What are Tax Saving Mutual Funds?

Tax Saving Mutual Funds, also called Equity Linked Savings Schemes (ELSS), are nothing but diversified equity mutual funds with a three-year hard lock-in period. They typically follow flexible investing mandates, thereby allowing them to pick stocks from across market capitalisations and sectors. Investments made into Tax Saving Mutual Funds quality for deductions under Section 80C. Unlike other Section 80C deductible instruments, Tax Saving Mutual Funds provide investors with the potential to outpace inflation and create wealth from their savings, as they invest into the equity markets. As a category, ELSS funds have delivered returns of close to 19% per annum over the previous five years (as of 7th November, 2017). This is nearly two and a half times more than returns provided by traditional instruments such as NSC, PPF and Life Insurance.

How can you invest into a Tax Saving Mutual Fund?

The process of investing into Tax Saving Mutual Funds is extremely simple. If you’re a first-time investor, you need to undergo a onetime process known as KYC (Know Your Customer), post which you need to fill out a simple form and append a cheque. Instead of investing the entire sum at once, you may choose to spread your investment in equal tranches over the next five months, using an STP (Systematic Transfer Plan).

5 Tax Saving Mutual Funds to consider

If you’ve made up your mind to invest into a Tax Saving Mutual Fund this year, here and five funds for you to consider at this time.

DSP BlackRock Tax Saver Fund

DSP BlackRock Tax Saver Fund is a relatively aggressive Tax Saving Mutual Fund that favours mid-caps over large caps. For this reason, it is an ideal choice for individuals looking to deploy their tax-saving investments for long term goals such as their retirement.

Franklin India Tax Shield

Franklin India Tax Shield is a relatively conservative Tax Saving Mutual Fund with strong risk control mechanisms inbuilt into its modus operandi. It tends to favour large cap stocks. It has proven itself as a consistent performer with the ability to effectively manage downsides during tumultuous market phases.

SBI Magnum Tax Gain

SBI Magnum Tax Gain is a Tax Saving Mutual Fund with a 24-year track record. It has a tendency to pick large cap stocks over small or mid cap stocks, and runs a portfolio that’s diversified across 60+ stocks. It currently has a 35% allocation to banks and financials.

ICICI Prudential Long Term Equity Fund (Tax Saving)

ICICI Prudential Long Term Equity Fund (Tax Saving) has been a consistent benchmark beater across times frames. It tends to diversify itself across market capitalisations and has a preference for picking undervalued stocks. It has a 5-year return of 18.28% per annum^

Aditya Birla Sun Life Tax Relief ‘96

An ELSS with a 21-year track record, ABSL Tax Relief ’96 follows a bottom up, multi cap investment strategy. It veers towards high quality stocks and avoids speculative bets. It tends to make sizeable allocations to MNC companies. The fund has delivered returns of 22.39% per annum^ in the past five years.