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Saturday, January 28, 2017

Top 5 tax saving mutual fund schemes (ELSS) for 2017

As we approach year end, our search for the best tax saving instrument under 80c ends at tax saving #ELSS mutual fund schemes. By far the best investment tool with triple exemption benefit (no tax to be paid for buying, accumulation, redemption) with the lowest lock-in period of 3 years and maximum exposure to the capital market for young professionals or anyone who wishes to focus on long-term wealth creation through equity market. For the beginners, ELSS is an actively managed equity fund by an experienced fund managers with an equally equipped equity research team. Over last 5 years, ELSS category has given over 12% tax-free annualised return on an average which is way higher than any other tax saving tools. Hence, it is my favourite tax saving instrument.

Top 10 reasons to invest in ELSS schemes
  1.  Minimum investment for a monthly investment is Rs. 500
  2.  No obligation of repeat investment in the same fund every year
  3.  No maturity/redemption obligation on completion of 3 years (unless specified by the   fund/scheme), can withdraw anytime once the lock-in period is over
  4.  It can be held as long as the investor wants, giving it a chance to build long-term wealth
  5.  The fund is managed by able fund management teams
  6.  Low fee structure and expenses, about 2-2.5% yearly
  7.  No long term capital gain tax
  8.  Investor has an option to chose between dividend or growth fund
  9.  The dividend earned on these funds are tax-free
  10.  SIP method of investing would help in cost averaging
Some point of concerns –
As it is a pure equity investment, it carries market risks, highly volatile
The SIP mode of investment signifies each purchase will have a separate lock-in period of 3 years

Top 5 #Taxsaver #ELSS schemes for 2017

ELSS Schemes
AUM in crore
Returns for 3 Years
Returns for 5 years
#DSP-BR Tax Saver Fund
#Reliance Tax Saver
#Axis Long Term Equity Fund
3 star
#Birla SL Tax Relief 96
#Franklin India Tax Shield
3 star

I have listed 5 top ELSS scheme based on 5 parameters–
1. Funds with over 7 years existence
2. AUM over Rs. 1000 crore
3. Among top 10 fund house
4. Return analysis over 5 years
5. Rating consistency by CRISIL/ Value Research

This fund is out an out consistent over last 10 years. It has consistently beaten the index over 1 year, 3 year, 5 years return. This fund has out ranked most other funds in ELSS category in the period. Investment details The fund aims to generate medium to long-term return on majority investment in equity and equity related instruments. The fund has over 20% exposure in banking and finance sector however invested mostly in private sector banks, so less chance of getting affected by NPA. It has some quality cyclic stocks.

#Reliance Tax Saver Fund

ELSS fund with over 10 years existence, AUM over 5.5 thousand crore comes from a good pedigree. Rated 3 stars by CRISIL, the fund has beaten indices over 3 years and  5-year trailing returns. In the 1 and 2 year category, has been below the indices in many cases. It is a good investment with high-risk appetite. It has also given the highest return in the SIP for 10 years category. Investment details – This is a mid-cap, small-cap heavy fund, aims to generate wealth over long term. Fund manager looks for value buy of stocks with bottom-up stocks picking approach. The portfolio is well-diversified and spread across sectors. 

#Axis Long Term Equity Fund

With an AUM over 9,900 crores as of 20th Jan 2017, it leads the ELSS scheme in the top position. It has lagged in last 1 year in comparison to its peers and indices, but over 3 years, 5 years returns it is in the top 5 ranks. 
Investment details The scheme aims to generate regular long-term capital growth from a diversified portfolio of equity and related securities. It invests in companies with strong growth and sustainable business model. It has equity exposure up to 95%, given some trailing returns in the short-term but expected to even out over long term. It is still a good choice. It avoids buying companies which have excessive business uncertainty on account of cyclical, regulatory, political risks.

#Birla Sunlife TaxRelief 96   

A fund with good pedigree has a defined track history over20 years has a AUM of 2.3 thousand crore belong to good fund pedigree. In last 1year, it is trailing the index. While in 2, 3, 5 years returns, it has beaten indices return with significant margin. It has generated over 100% return over years. Investment details- It is a multicap fund with well-diversified portfolio. However, fund has a cyclical stock bias, which has its own effect on return cycles. Well diversified in its approach, the top 5 holdings only account for 26% of the portfolio.

#Franklin India Tax Shield
A fund with a track record over 7 years has been at par with index returns for 1 year and for over 2,3 and 5 years it has performed well above indices. This fund tends to be less volatile compared to its peers. Investment details- The process of the fund house is robust. This fund is known for having conservative approach, bottom-up style of stock picking and having growth style of investing. The fund with a large-cap bias which accounts for almost 60% of the portfolio has a 25% exposure in mid-cap, small-cap category.  Well diversified in portfolio construction, the top 5 holdings accounts for only 26% of the portfolio. 

Don’t break your head over minute investment return details, it is a game of sector allocation, Mkt-cap of companies and economic cycles. Choose a fund with a basic research and your investment style as criteria. #ELSS is nothing but an equity mutual fund and over long-term it is expected to give good returns, which also provide #tax benefits under income tax act, section 80C. However, it is advised to consult a professional financial planner before investing.

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