It’s a well-known fact that ELSS funds are one of the best tax-saving options available to investors. But how do choose the one you should invest in for 2021 from the long list of 38 ELSS funds. Read on to find out.
But first a short primer on ELSS funds.
What is an ELSS?
ELSS or equity-linked savings scheme is like any other equity mutual fund scheme, with a crucial difference in offering tax benefits. An ELSS gives you a tax deduction benefit of up to ₹1.5 lakh under Section 80C. It comes with a three-year lock-in period. While some call this a hindrance others tout it as an advantage, given that the other alternatives have a higher locked-in period.
We believe, neither is the case. Investing in an equity mutual fund is similar to investing in direct stocks. You need to invest in an ELSS scheme with a long-term horizon of 7-10 years, just like you would invest in any equity product.
Why is ELSS the best alternative?
Simply put, it gives you the best chance to earn higher returns than any other tax-saving alternative, as it is the only pure equity investment vehicle that offers tax benefits. See the table below for comparison with other tax-saving instruments.
How to choose the best ELSS fund?
- Identify funds with a consistent investment process, portfolio quality, and decent upside potential
- Choose funds with a low expense ratio and low portfolio churn
- Choose funds with consistent returns over different time periods
- Look for funds with a high active share
To know in detail about these parameters read, ‘How do you select the right Equity Mutual Fund to invest in?’
Check MoneyWorks4me.com to know which are the best ELSS funds to buy right now for FREE.
What are the Top 10 ELSS Funds for 2021?
Following is a list of ten shortlisted ELSS funds for 2021 based on the above parameters (sorted on the basis of 5 Yr average rolling return potential)
1. SBI Long Term Equity Fund:
Though the fund was launched in 1993, fund manager Dinesh Balachandran has been managing it since Sep 2016. The fund’s investment style has changed from growth to value since then. The fund manager chooses to invest in stocks where there is high valuation comfort, though the near-term visibility may not be great.
2. Mirae Asset Tax Saver Fund:
The fund manager follows a growth at a reasonable price investing strategy. The fund takes a bottom-up approach to invest and follows the fund house’s investment philosophy of investing in quality companies, companies with high future growth possibilities, having a competitive edge over peers, high ROI, and good corporate governance.
3. IDFC Tax Advantage (ELSS) Fund:
The fund also follows a growth at a reasonable price investing strategy. The fund manager pursues an aggressive investment with almost 48% of the portfolio invested into small/mid-caps stocks and thus is suited for investors with a high-risk appetite.
4. Tata India Tax Savings Fund:
The fund follows a Blend of both ‘value’ and ‘growth’ style of investing, with a high focus on the Quality of companies. It has a top-down approach, taking cues from the macro-economic environment and other major industry drivers. Though the fund can invest across market caps, it currently portrays a huge large-cap bias with an almost 85% portfolio in large-cap stocks. The fund also has a slightly concentrated portfolio, with Top 10 stocks forming almost 60% of the portfolio.
5. DSP Tax Saver Fund:
According to the Fund Manager Rohit Singhania, the fund does not allow any specific investment approach, enabling the fund manager to invest in any opportunity the market may provide. Consequently, the fund floats a higher churn ratio than most of its peers.
Investors should also take into account the frequent changes in the equity investment team. The team has seen the exit of key managers including S. NAganath (CIO), Anup Mahaeshwari (CIO), Harish Jhaveri, and more recently, Gopal Agrawal. These frequent changes put forth a legitimate question on the team’s stability.
6. Aditya Birla SL Tax Relief 96(G):
The fund currently focuses on buying high-quality companies with strong parentage, while avoiding companies with excessive leverage or uncertainty. These basically include consistent wealth creators who possess significant economic moats (brand recall, technology, global parentage) and provide better earnings predictability and sustenance across business cycles.
7. Kotak Tax Saver Fund:
The fund follows growth at a reasonable price investment philosophy. The fund manager Harsha Upadhyaya is positioning the fund to gain from India’s economic revival, with an investment focus on companies that are prime rerating candidates. The fund continues to maintain a large-cap bias with almost 58% of the portfolio invested in large-cap stocks.
8. Canara Robeco Equity Tax Saver Fund:
The fund follows a blend of bottom-up and top-down investing approaches. However, the focus remains on high-growth companies in attractive sectors. Though the fund currently portrays a large-cap bias, the fund manager is open to investing in mid/small-cap stocks as opportunities in the space rise.
9. Invesco India Tax Plan:
Though the fund house is style agnostic, Invesco India Tax Plan has a visible growth bias in its portfolio. The fund is concentrated in large caps stocks with almost 65% of the portfolio invested in this space.
10. Axis Long Term Equity Fund:
For the past few years, Axis Long Term Equity has been the best performing fund in the category. Since taking over the reins in 2011, fund manager Jinesh Gopani has focused on investing in Quality bluechip/large-cap companies that are leaders in their industry. While this fund does extremely well in bear phases of the market, the fund will underperform the market in bull markets.
MoneyWorks4me Top Pick:
SBI Long Term Equity Fund: The fund portfolio is presently nicely positioned to benefit from India’s economic recovery cycle. We also expect value strategy to outperform growth over the next few years. We thus prefer the fund over peers currently.
However, investment in any of the above funds with an investment horizon of 7-10 years should yield good returns.
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