Top 5 Best ELSS Tax Saving Mutual Funds to Invest in 2018

Of late, ELSS (Equity Linked Savings Schemes) Tax Saving Mutual Funds have gained prominence, largely propelled by an increasing awareness regarding the poor returns afforded by traditional life insurance policies. ELSS, though risky, provide investors with the chance of earning significantly higher returns than Life Insurance and other traditional instruments over a 5 to 7-year time horizon.

In case you’re in a dilemma over which ELSS to pick to fill out your remaining 80C quota, look no further than these fantastic funds. For Tax Saving, yeh Mutual Funds Sahi Hai!

ICICI Prudential Long-Term Equity Fund (Tax Saving)

A rarity in the ELSS space, this fund adopts a value-based approach as opposed to a growth-based approach. Its strategy has paid off richly until now, as it has outperformed the category average for tax saving mutual funds in 13 of the past 15 years. The portfolio is generally constructed from undervalued stocks rather than momentum-based stocks. Currently around half the fund’s portfolio is parked into large caps. A good choice for tax saving aspirants right now, given the rich valuations of the broader markets.

Franklin India Taxshield

Franklin India Taxshield isn’t a swashbuckler that chases trends. It has resolutely maintained its large cap bias regardless of market trends, which makes it an ideal choice for individuals who have slightly lower tolerances to risk. Franklin India Taxshield avoids momentum stocks and sticks to bottom-up fundamentals-based investing, despite the fact the Franklin Templeton Mutual Fund, as an AMC, favours a growth style of investing. It has proved to be quite dexterous at navigating choppy markets, and has a significantly lower Beta than the category average for Tax Saving Mutual Funds.

DSP BlackRock Tax Saver

DSP BlackRock Tax Saver recently completed 10 years since its launch, and has since built out a solid track-record of consistent outperformance. The fund has traditionally favoured more aggressive investments into mid and small cap stocks, but has off late rejigged its portfolio into a more “large cap” oriented one. It also maintains a more diversified portfolio than its peers, holding 68 stocks as on date. It has delivered an impressive 21.04 per cent per annum over the past five years.

SBI Magnum Tax Gain

A veteran in the ELSS space, SBI Magnum Tax Gain has been around for nearly two and a half decades, and has assets exceeding Rs. 6,000 Crores. It has returned 17.57% annualised returns since inception, and maintains a well-balanced allocation between blue chips and mid-caps. The fund’s portfolio is currently skewed towards financials, energy and engineering stocks. Starting off as a close ended fund, it was converted to open ended in 1999.

Aditya Birla Sun Life Tax Relief ‘96

ABSL Tax Relief ’96 is one of the oldest tax saving mutual funds. It does not run with any specific market cap bias, but rather uses ‘quality’ as its underlying philosophy – resulting in the accumulation of quite a few MNC stocks within its portfolio (such as Gillette and Thomas Cook India). Compared to its category, we’ve seen this fund maintaining a slightly higher allocation to mid-caps, meaning that its portfolio can be more volatile during choppy market. The fund has outperformed the category average handsomely in the 5-year and 7-year time frames.

End Note: ELSS funds are high risk/ high return instruments, and investors are advised to assess their risk profiles before deciding whether to invest or not. Additionally, investors are advised to enter with a minimum time horizon of 5 to 7 years, although the mandated lock-in finishes within three years. For best results, start an SIP in an ELSS at the very beginning of the Financial Year.