Looking for tax-saving investments? Here are top ELSS funds that you may consider

By: | Published: December 5, 2018 5:51 PM

Equity linked savings schemes (ELSS) are one of the popular tax-saving investment options due to their efficiency to beat inflation in the long run.

Equity linked savings schemes, ELSS, tax-saving investments, inflation, 80C deductions, income tax, long term capital gain, capita gain tax, Motilal Oswal Long Term Equity Fund, Taurus Tax Shield, JM Tax Gain Fund - Growth Option, L&T Tax Advantage Fund, Principal Tax Savings Fund, Axis Long Term Equity Fund, IDFC Tax Advantage (ELSS) Fund, ICICI Prudential Long Term Equity Fund, HDFC TaxsaverAs the scheme provides tax deductions u/s 80C, it has a perpetual lock-in period of three years.

Equity linked savings schemes (ELSS) are one of the popular tax-saving investment options due to their efficiency to beat inflation in the long run. Despite the government’s decision to impose 10 per cent capital gains tax on long term capital gain of over Rs 1 lakh on redemptions made in a financial year, they are still a tax effective investment scheme that generate higher return than most of the tax-saving schemes.

As the scheme provides tax deductions u/s 80C, it has a perpetual lock-in period of three years. So, the units bought through each installment will become free for redemption a day after the completion of three years from the date of purchase of the units.

However, it is not compulsory to redeem the units on completion of three years and preferably you should stay invested for longer period to fetch higher returns because 3-year period is considered very short for equity investments and the CAGR may be remain lower than expected.

Following are the top 5 ELSS funds based on their 3-year performance till November end.

1. Motilal Oswal Long Term Equity Fund: Started in January 22, 2015, this relatively new fund has outperformed its benchmark Nifty500 as well as the average category performance of ELSS funds. While the performances under growth option in last six months and through the last year were not satisfactory and generated negative returns, the CAGR for last three years was 14.18 per cent, the highest among the ELSS funds. As the fund is just about to complete four years, performances for longer terms are not available.

2. Taurus Tax Shield: This is one of the oldest ELSS funds that was launched as a close-ended scheme in June 1996 and was made open-ended in February 2001. The scheme has seen many ups and downs and overall performance remained close to that of its benchmark Nifty200 and the category performance of ELSS funds. While the performance of last one year under the growth option was positive, that of last six months was negative. The CAGR generated in last three years was second best of 12.83 per cent. The CAGR of the scheme in last 5 years was 15.24 per cent and for 10 years was 17.71 per cent.

3. JM Tax Gain Fund: Started in April 23, 2008, the scheme has completed 10 years of its journey. After lagging till 2011, the scheme started giving a performance close to its benchmark Nifty500 and the average category performance. While the performances under growth option in last six months and through the last year were negative, the CAGR for last three year was third best of 12.76 per cent. The CAGRs for last five and 10 years were 17.66 per cent and 15.42 per cent respectively.

4. L&T Tax Advantage Fund: Started in February 27, 2006, the scheme is giving a performance close to its benchmark Nifty200 and the average category performance. While the performances under growth option in last six months and through the last year were negative, the CAGR for last three year was 12.44 per cent, the fourth in the ELSS category. More impressing were the CAGRs for last five and 10 years, which were 17.03 per cent and 19.52 per cent respectively.

5. Principal Tax Savings Fund: Started in April 1, 1996 it is a veteran among the ELSS schemes that seems to have a slightly higher Beta, which gives the fund higher profit or loss than its benchmark Nifty500. While the performances under growth option in last six months and through the last year were negative, the CAGR for last three year was also 12.44 per cent. The CAGRs for last 5, 10 and 15 years were 18.15 per cent, 15.13 per cent and 16.48 per cent respectively.

Topmost fund based on 5-year performance

Axis Long Term Equity Fund: Started in December 31, 2009, this relatively new scheme is about to complete eight years of its journey, through which it has done well to mostly stay ahead of its benchmark Nifty200 and has generated highest CAGR of 20.54 per cent in five years. While the performance of last one year under the growth option was positive, that of last six months was negative. The scheme has generated seventh best return in term of the CAGR for the last three years.

Topmost fund based on 10-year performance

ICICI Prudential Long Term Equity Fund: Started in August 19, 1999, the scheme was closely following its benchmark Nifty500 till 2016, but lagged behind in 2017 leading to appointment of new fund managers in November 2018. The scheme topped the 10-year return list with a staggering CAGR of 21.68 per cent. The CAGR for last 15 years was also an impressing 18.48 per cent. However, the scheme was in lowly 18th place with a CAGR of 8.91 per cent for the last three years, despite positive figures for last six months and last one years.

Topmost fund based on 15-year performance

HDFC Taxsaver: Started in June 14, 1996, the fund has given a consistent performance and stayed close to its benchmark Nifty500, giving a high CAGR of 18.93 per cent in the last 15 years. The CAGR for last 10 years was also high at 18.72 per cent, but gradually dropped to 14.68 per cent for the last 5 years and 8.45 per cent for the last 3 years putting it at 22nd place. The performances under growth option in last six months and through the last year were also not satisfactory and generated negative returns.

Following table shows performance of all the ELSS schemes as on November 30, 2018.

Equity linked savings schemes, ELSSSource: NJ Wealth

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