Equity linked savings schemes or equity-based tax saving mutual funds are favored not only for their substantial returns on a long-term basis, but also for their tax benefits. These funds provide tax benefits under Section 80C of the Income Tax.
You can save up to a maximum of Rs. 1.5 lakh in a financial year through taxes. While there are other instruments like PFF (Public Provident Fund), NSC (National Savings Schemes) etc.; which provide tax saving benefits, ELSS has the shortest lock-in period of them all with the scope of highest returns, on a long-term basis.
Here are the top 5 ELSS mutual funds for 2017
- DSP BlackRock Tax Saver Fund – The fund was launched on January 18, 2007 and had returned 14.42 percent per annum since launch. It delivered 27.89 percent in the past 1 year, 25.54 percent in the past 3 years, 20.83 percent in the past 5 years and 10.42 percent in the past 10 years. The expense ratio is 2.59 percent with an asset fund size of Rs.1494 crore. The fund has performed exceptionally well, especially since 2011. As on January 2016, three-fourth of the fund’s investments are vested in large caps, while the rest is pooled in mid-caps and small caps. The new fund manager Rohit Singhania (appointed in July 2015) has positioned banks, automobiles and petroleum products as the three sectoral choices.
- Reliance Tax Saver – The fund launched on September 21, 2005 is a top pick among tax saving equity mutual funds. It has returned 15.40 percent per annum since launch, 22.09 percent in the past one year, 29.16 percent in the past 3 years, 21.18 percent in the past 5 years and 12.84 percent in the past 10 years. Though most ELSS funds opt for multi-caps, this fund looks out proactively for mid and small cap stocks. The large cap exposure, generally, is usually in the 25 to 45 percent range though it can raise the percentage share depending on market conditions. The fund is a blend of value and growth investing.
- Birla Sun Life Tax Relief’ 96 – The fund launched in 1996, is one of the oldest tax saving mutual funds. Since launch, it has given 25.50 percent returns per annum. It has delivered 16.99 percent in 1 year, 24.16 percent in 3 years, 19.83 percent in the past five years and 10.78 percent in 10 years. The fund follows a multi-cap strategy with almost 60 percent focus in large caps and the rest in small and mid-caps. The fund has gone for a few unusual mid cap picks as top holdings, after solid research. The expense ratio is 1.76 percent. Birla Sun Life Tax Relief’ 96 did suffer in the bearish markets of 2008 and 2011 but has delivered exceptionally well in the bull years, thanks to a solid fund management team.
- Axis Long Term Equity – The fund was formed on December 29, 2009. It has delivered 17.89 percent return per annum since launch. It has delivered 10.67 percent, 14 percent and 21.63 percent in the past 1, 3 and 5 years respectively. The fund is mostly large cap oriented compared to its peers. In the past year, it increased large cap weightage to 65 to 70 percent, while keeping mid-caps at 25 to 30 percent. Meanwhile the asset size has also increased from Rs. 4 crore when it started off to Rs. 10,488 crore by November 2016. The expense ratio is 1.96 percent. The fund has not been really tested in a November 2008 situation. Since 2005, the fund went in for cyclical sectors and stocks that were beaten down, which slowed its past one year’s performance. But the fund is still one of the leaders in the ELSS bracket, and is known for its safe, superior returns on a long-term basis.
- ICICI Prudential Long Term Equity Fund – The fund was launched on August 19, 1999 and the return since launch has been 21.50 percent per annum. It has delivered 17.02 percent in the past one year, 21.15 percent in the past 3 years and 17.91 percent in the past 5 years. The AUM size is Rs.3561 crore and the expense ratio is 2.31 percent. The fund has outpaced benchmarks in various market cycles, in 13 of the past 15 years. It is a rare ELSS fund that adheres to value-style investing. Usually, 55 to 65 percent of the portfolio is allocated to large caps, with 20 to 30 percent in mid-caps and 10 to 15 percent in small caps.