Based on research and their rankings, we have picked out five mutual fund schemes that have shown good performance over the long term.
Equity markets are volatile and unpredictable. Mutual funds have also suffered in the current market volatility and decline in prices of some stocks. However, is that any reason to stop investing? Absolutely not. It doesn’t matter at what levels the markets are; investors should be firmly fixed on their goals and continue their investments.
Here, I am going to talk about equity-linked savings schemes (ELSS) or tax-savings schemes that they would do well to invest in – primarily for saving on taxes but also for long-term capital growth. All these schemes have a lock-in of 3 years and investments up to Rs 1.5 lakh are tax deductible under Section 80C of the Income Tax Act.
Based on our research and their rankings, I have picked out five mutual fund schemes that have shown good performance over the long term. Let us look at each of them and see their merits.
Aditya Birla Sun Life Tax Relief 96 – Direct – Growth
This mutual fund, launched in 1996, has assets under management of slightly over Rs 7000 crore (as on Feb 19, 2019). The direct plan, growth option has given an average annual return of 15.6% over a three-year period while over a five-year period it has given a return close to 20%, despite all the vagaries that we have seen over the years.
Its portfolio, as of today, is weighted towards the financials and healthcare sector. Though the financial services sector looks shaky at the moment, investors need to look at the fact that it will not stay that way forever. Banks are cleaning up their balance sheets and the current process of debt resolutions is yielding results. Non-banking finance companies are currently still recovering in the aftermath of the IL&FS fallout but with the Reserve Bank of India easing liquidity norms we expect the sector to be back on its feet in a year or so. Many of them are managing their cash flows by slowing down disbursements and focusing on collections. That is a good sign for the sector.
Healthcare is a sector that is likely to do well, especially considering that the government is spending on healthcare and ensuring that everyone has access to healthcare.
Axis Long Term Equity Fund
The next scheme on my list is Axis Long Term Equity Fund and one of its chief attractions is that it has an expense ratio of less than 1%, an important parameter when evaluating any scheme. This is a nine-years old scheme and assets under management are more than Rs 17,000 crore (as on Feb 19, 2019).
In the difficult conditions of the last one year, the fund has given positive returns and about 20% return in five years. More than 40% of its holdings are in the financial sector. If that worries you, we can dig a little deeper and find that among the top stocks in the sector in which it has exposure are HDFC Bank, Bajaj Finance, Kotak Bank and HDFC. These are companies that have not been touched so far by the troubles in the sector.
Mirae Asset Tax Saver Fund – Direct – Growth
Just over three-year old, this mutual fund is a favourite of many portfolio managers. Though small in size – with just about Rs 1300 crore of assets in management as on Feb 19, 2019 – it is an extremely economic fund with an expense ratio of 0.32%. Its three-year return looks impressive at 22.8% and over the last one year it has done much better compared to its peers.
Nearly about a third of its assets are in the financial sector and among its top three holdings are HDFC Bank and Axis Bank, both of which are sound banks with good corporate governance practices.
All its top ten holdings consist of companies, which are part of the benchmark stock index. So, investors can rest assured that their investment is in safe stocks.
Motilal Oswal Long Term Equity Fund
Launched in January 2015, this scheme’s one-year return is -11%, but don’t let that deter you, because its 3-year return is more than 17%, and its long-term performance is what investors should focus on. With just over Rs 1000 crore of assets under management, as on Feb 19, 2019, and an expense ratio of just under 1%, I would recommend this scheme because of its pedigree. Motilal Oswal understands the equity markets as no other brokerage does.
Of course, its exposure to the financial sector at more than 46% may seem rather excessive considering what the sector is going through, but I would assume that the attractive valuations in the sector are what the scheme is betting on. Again HDFC Bank, HDFC, IndusInd Bank, and Bajaj Finance are among the top stocks in the portfolio and these are good, solid performers.
Invesco India Tax Plan
The last choice in my basket is Invesco India Tax Plan and I have included it because our analysis showed mostly pros for the scheme and we are yet to find the cons. Its long-term returns have been good, easily beating the benchmarks and some of its peers.
Its exposure to the financial sector is not as high as some of the other schemes in my list and it has a well-diversified portfolio.
These are just a few of the tax-saving mutual fund schemes that we have researched and come up with. If your own research brings up some other schemes, you can always include them in your portfolio. One word of caution though – don’t put all your investments in one scheme. You should ideally have your investments spread among 2 to 3 schemes for risk diversification.
(By Harsh Jain, Co-founder & COO, Groww)
(Disclaimer: This article is for information purposes only and does not purport to be advisory in nature. Readers are advised to consult their financial advisor before making any investment.)