Best ELSS funds to invest in FY 2017 – 2018

ELSS Funds

Top 3 best ELSS funds (Tax Savings mutual funds) to invest in FY 2017-18

There are many tax savings options available for investors who want to make use of the exemption limits provided under Income Tax section 80(C). ELSS funds are one of the best options amongst them. There are many ELSS funds available in the market, in this article we will list down three of the best ELSS funds to invest in. First, let us start with why ELSS is a good investment.

Advantages of ELSS funds

  1. Tax Savings under 80C – You can save up to ₹1,50,000 under section 80C in ELSS. This means savings of up to ₹7,500, ₹30,000 & ₹45,000 for investors in tax bracket of (5%, 20% & 30% respectively).
  2. Lowest Lock in – Amongst all the tax savings investment options under section 80C, ELSS has the lowest lock-in period of only 3 Years. To compare, Tax Saving FDs & ULIPs have 5 year Lock-in and PPF has a lock-in of 15 years (with option of partial withdrawal from 6th year).
  3. Equity Exposure – For beating inflation & wealth creation Equities are the best option available; through ELSS funds you get the Equity Exposure with considerably less risk than direct equity investing due to the diversification provided by mutual funds. The returns from Equity are considerably higher than other asset classes over long term.
  4. Tax free Returns – The returns from ELSS funds are completely tax free. Gains from Equity Mutual funds which are redeemed post one year of investment come under Long Term Capital Gains which are tax free. Since ELSS investments can be redeemed only after 3 years, the returns from them are automatically tax free.

Best ELSS funds:

After knowing the benefits of ELSS, now let us analyse three ELSS funds that we have shortlisted for you as they have been good performers in long term.

1. Axis Long Term Equity Direct – Growth

This fund has a strategy of buying quality stocks with a growth bias. The fund focuses on stocks of companies with scalable business models which can provide a high return on capital and secular growth. The portfolio of the fund is tilted towards large-caps, their weight being 65-70 per cent and mid caps being 25-30 per cent. The fund being managed by Mr. Jinesh Gopani has been a consistent performer for many years, however in last year its performance has gone down since it does not prefer to invest in cyclical stocks and sectors. In the long term it has beaten both, the category and benchmark and this should continue to remain so in the coming years too.

2. Birla Sun Life Tax Relief 96 – Growth

The fund has a track record of more than 21 years and its performance has been very good in last 5 years. It has beaten both, the benchmark (S&P BSE 200) & the category 4 times in last 5 years. The fund takes a multi cap approach and currently has more than 45% exposure to mid caps. The fund invests in quality companies and does not limit it to any particular market cap. The fund’s performance in the early years was not up to the mark but post 2006 under the fund manager Ajay Garg it has been giving good performance.

3. Franklin India Taxshield Direct – Growth

This fund has performed well over the long term. It invests predominantly in the Large Caps and has limited exposure to mid & small cap stocks (less than 20% currently) due to which it has contained its downside while delivering handsome returns over the long term. This fund is managed by Mr. Anand Radhakrishnan who has a research driven investment approach with a focus on reasonably valued quality stocks. The fund remains invested in equity in all cycles and avoids cash calls. The fund might not provide returns similar to its aggressive peers but it has managed to contain its losses in the bear market while beating its benchmark in 7 out of last 10 years.

  1. You may check the 3 year and 5 year performance of these funds in the below table:

Best ELSS funds

*Upside/Downside Capture Ratio:

Upside/Downside capture ratio indicates whether a fund has outperformed (gained more or lost less than) a market benchmark.

An upside capture ratio of over 100 indicates a fund has generally outperformed the benchmark during periods of positive returns for the benchmark.

Meanwhile, a downside capture ratio of less than 100 indicates that a fund has lost less than its benchmark in periods when the benchmark has give negative returns.

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 Points to remember

  1. ELSS invests in equities, hence the returns are not guaranteed but in the longer term equities have generated the best returns amongst all asset classes.
  2. ELSS have lock-in of 3 years, hence if you do SIP in ELSS, each installment will be locked in for 3 years.
  3. ELSS is the best tax saving instrument available if your investment horizon is of 5 or more years.
  4. Invest in Direct plans of ELSS funds to generate higher returns.

Best ELSS Funds

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