February 11, 2019

Top 5 Best ELSS Tax Saving Mutual Funds 2019

Which are the Top 5 Best ELSS Tax Saving Mutual Funds 2019? How to choose them for your tax saving as well as for long term growth?

Recently I wrote a post Top 10 Best SIP Mutual Funds to invest in India in 2019 and Best Debt Mutual Funds to invest in 2019 India. In that post, I have not covered ELSS or Tax Saving Mutual Funds. Because yearly I used to write a separate for ELSS Funds. Hence, following the trend, I am writing this post.

What are ELSS or Tax Saving Mutual Funds?

  • ELSS (Equity Linked Savings Scheme) or Tax Saving Mutual Funds are the special funds which are meant for tax saving purpose under the Sec.80C of IT Act.
  • As per the recent SEBI Recategorization, ELSS funds are those funds whose minimum investment in equity or equity-oriented instruments for at least 80% of AUM.
  • Lock-in period of ELSS or Tax Saving Mutual Funds is 3 years. This is the lowest lock-in period among all tax saving instruments you invest. However, do remember that each investment (monthly SIP) is considered as a fresh investment. Hence, such each investment or monthly SIP must complete 3 years for liquidating. Let us say you started the monthly SIP on 1st January 2017, then the first SIP will be eligible for withdrawal after 3 years completion means after 1st January 2020. Same way 1st February 2017 SIP will be eligible for withdrawal after 1st February 2020. It will continue like that. Never be in wrong belief that one year SIP in ELSS funds means after 3 years can withdraw FULLY. You have to wait for fourth-year completion to completely withdraw the amount.
  • Earlier ELSS used to fall under EEE tax rule (Exempt-Exempt-Exempt). There will be tax benefit during investment, no tax on whatever you earn and no tax at the time of withdrawal. This includes the divided declared from such funds are also tax-free in the hands of investors. However, after the Budget 2018, there is LTCG Tax on Equity Mutual Funds at 10% if your capital gain from equity is more than Rs.1,00,000 in the financial year. Also, now dividend payout from equity mutual funds (inclusive of ELSS), attract tax (even though it is not payable by you). Refer my below section to understand about the taxation of ELSS (which is also considered as equity fund for taxation purpose).
  • The monthly investment required is as low as like Rs.500. There is no maximum limit. But the maximum tax benefit under Sec.80C is Rs.1.50,000 as of now.
  • All ELSS or Tax Saving mutual funds will not have same investment mandate or never feel that they all invest in same stocks or sectors. Based on the fund mandate, they have rights to invest accordingly. Hence, you must understand the fund portfolio before jumping into investment.
  • Never invest in ELSS or Tax Saving mutual funds with the intention that after 3 years you can easily come out investment with POSITIVE returns. This is the equity product. Hence, enter into such products only if you are ready to wait for more than 5 years or so.
  • Tax Saving ALONE will not be your motive to invest in such products. You must have a proper financial goal in mind and along with that proper asset allocation a MUST. If you are unable to do that then it is a sheer waste of investing randomly.

Why you have to invest in ELSS or Tax Saving Mutual Funds?

# You must have long-term holding period to invest (strictly not less than 5 years).

# You must invest in such funds only if you have a proper financial goal.

# You must do the proper asset allocation between debt and equity or among other assets based on the time horizon of your financial goal.

If the goal is below 5 years-Don’t touch equity product. Use the debt products of your choice like FDs, RDs or Debt Funds.

If the goal is 5 years to 10 years-Allocate debt:equity in the ratio of 60:40.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 40:60.

# You must have proper return expectation of your OWN before jumping into investment.

# You must know what is your portfolio return expectation when you combine both debt and equity.

# Finally, if you are feeling the shortfall in tax saving benefit under Sec.80C limit.

Notice that I gave the priority of tax saving the LEAST. So understand first then jump into investment.

Taxation of ELSS Tax Saving Mutual Funds for 2019-20

ELSS or Tax Saving Mutual Funds are considered as equity mutual funds for tax treatment. Hence, they are taxed accordingly. I tried to explain the same in below image.

Mutual Fund Taxation FY 2019-20 -Based on holding period

The rate of taxation is as below for the current FY.

Mutual Fund Taxation FY 2019-20 -Capital Gain Tax Rates

Also, refer the applicable DDT rates for Equity and Debt Funds after the Budget 2019.

Mutual Fund Taxation FY 2019-20 - DDT Rates

Hope the taxation part is clear to all of you. If you still have doubt, then refer my latest post “Mutual Fund Taxation FY 2019-20“.

How I selected the Top 5 Best ELSS Tax Saving Mutual Funds 2019?

After SEBI Recategorization, the funds are clearly defined and the same applies to ELSS also. As I pointed above, the ELSS or Tax Saving Mutual Funds are those funds who invest minimum 80% of their AUM in equity or equity oriented instruments.

Hence, fund manager now has a mandate to invest in any market cap of the market without bothering the fund mandate. The only thing he has to keep in mind that he has to mantian at least 80% of the AUM should be in equity or equity oriented instruments.

This gave the fund manager a full freedom to choose as per his wishes. But this poses the risk to investors also. Especially to those who BLINDLY invest for the same of tax saving.

As you may be aware Large Cap stocks are stable stocks, then comes the mid cap stocks and afterward small cap stocks which are highly risky in nature.

However, due to the fund manager mandate, he can move your money to any market by posing you the RISK which you may not be aware about it.

Hence, eventhough funds benchmarked their fund towards large cap may be investing heavily in mid or small cap.

Considering all these factors it is not wise to compare ELSS funds with respect to the benchmark they set to track the performance. Because of this, I consider the benchmark to screen these funds is Nifty Large Mid Cap Index 250 Index.

Hence, I used the Freefincal Equity Mutual Fund outperformance screener. Using this calculator, you can easily shortlist the funds with respect to the rolling return outperformance score for more than 70% consistency with regard to the Nifty large Midcap 250 Index over 5 years.

This means that suppose we calculate the return over 5Y in 700 different periods, the fund should have beat the index at least 490 times or more.

Along with this, you can also shortlist the fund by selecting the downside protection consistency score of greater than or equal to 70% with regard to theNifty large Midcap 250 Index.

After doing this, I found the below funds.

  1. Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan
  2. Axis Long Term Equity Fund-Direct Plan – Growth Option
  3. DSP BlackRock Tax Saver Fund-Direct Plan – Growth
  4. IDFC Tax Advantage  (ELSS) Fund-Direct Plan-Growth
  5. Invesco India Tax Plan – Direct Plan – Growth
  6. JM Tax Gain Fund (Direct) – Growth Option
  7. Quant Tax Plan-Growth Option-Direct Plan
  8. IDBI Equity Advantage Fund – Growth Direct

Now among these, I have to choose the Top 5 to list it and as per that my list are as below.

Top 5 Best ELSS Tax Saving Mutual Funds 2019

Only four funds rather than Top 5 right? Yes, I am uncomfortable with other AMCs of the funds which I listed above after screening. Hence, I am sticking to only FOUR funds rather than 5 Funds in ELSS category.

Also, choose the above four funds as I listed above. Hence, IDFC will be my last choice and first will be ABSL Fund.

What about those who invested in ELSS funds based on my last year’s recommendation? You can keep an eye on those funds and if they consistently under performed, then take a call based on the above choice. The changes happened during this year mainly due to two reasons. One is SEBI Recategorization and Benchmarking to TRI rather than the plan benchmark.

Refer my latest posts realted to Mutual Funds:-

41 Comments

  1. Hi Basu sir,
    I have recently started 5k in HDFC Hybrid Equity Fund (Balanced fund) and Aditya Birla Tax relief 96 Growth option -10k as suggested in your articles.
    Time horizon for around 5yrs to 10 yrs. Do you think these are good funds to invest and do Can i invest in one more fund or should be good enough.
    .
    Thank you for suggestions in advance

    Reply
    • Dear Anil,
      First be clear with your time horizon and then what is the asset allocation you are following?

      Reply
  2. Last year this plan is the top Birla Sun Life Tax Plan,but this year review it is not there,can you plz let me know the reason

    Reply
    • Dear Raja,
      I explained the reasons also behind my decisions. Please refer the post once again.

      Reply
  3. HELLO SIR,
    THANKS FOR YOUR VALUABLE POST,
    FROM LAST THREE YEARS I AM INVESTING Rs 1000 IN SBI MAGNUM TAX GAIN SCHEME (GROWTH) SHOULD I CONTINUE INVESTING MORE IN SAME SCHEME OR FLIP TO ANOTHER. AWAITING YOUR VALUABLE SUGGESTION

    Reply
    • Dear Vinay,
      What prompted you to choose SBI Fund? What is your time horizon and what asset allocation you are following?

      Reply
  4. Basavraj Thanks for such a helpful post. I am planning to invest in ELSS mutual fund and time horizon would be 15 years. I will be investing 1 lakh per year to tax saving. Now my query is , should I invest in one or two ELSS ( definitely not going to invest in more than two) ?.
    My first pick would be AXIS and if you suggest two may I know what would you suggest for second option?. I can take a bit risk for second one.
    Waiting to hear from you.. thanks once again.

    Reply
  5. Dear sir,

    I have Rs. 5000 SIP in mutual funds:

    Kotak multicap standard – 2000/month
    Mirae asset emerging blue Chip fund- 2500/m
    SBI bluechip fund – 1500/mnth
    ICICI equity and debt fund -1000/m

    Keeping long term financial planning, kindly suggest if the fund allocation done correctly.
    I was thinking of replacing the SBI bluechip fund with Mirae asset India equity fund.
    Also thinking of adding Axis long term equity. Kindly advise

    Reply
    • Dear Rahul,
      It is hard for me to guide anything BLINDLY without knowing the meaning of LONG TERM and what asset allocation you are following between debt and equity.

      Reply
      • Dear sir,

        Long term i meant 18-20 yrs. Kindly suggest if i replace SBI bluechip fund with Mirae asset india equity fund and should i keep the ICICI pru equity and debt fund. Kindly suggest

        Reply
        • Dear Rahul,
          First do the asset allocation of around 60:40 between equity and debt. For equity, I am repeating again that you just need two to three funds like one large, one mid and one small cap. Rest all funds not required.

          Reply
  6. After going through your interesting articles on Mutual Fund i have invested in ELSS fund and currently performance is not good.
    1.DSP Black Rock Tax Gain: Investing since 18.11.2017 (period 36 months) with monthly sip of 3000=00. Total invested amount on 1.3.19 is 45000=00 and current market value is 44585=00
    2.Franlin India Tax shield: Investing since 18.11.2017 (period 36 months) with monthly sip of 2500=00. Total invested amount on 1.3.19 is 39999=00 and current market value is 39448=00
    3.Birla Sun Life Tax shield: Investing since 18.11.2017 (period 36 months) with monthly sip of 3000=00. Total invested amount on 1.3.19 is 42000=00 and current market value is 41134=00
    What is your advice? Should i keeping invested in above funds or should i discontinue? Please advice.

    Reply
    • Dear Shrikant,
      Why you selected THREE funds rather than ONE? What is your time horizon of investment and holding period? what asset allocation between debt and equity you are following?

      Reply
      • My time horizon of investment is 3 years and holding period is 5 years.What is your opinion?

        Reply
        • Dear Shrikant,
          Stay away from equity use Ultra Short Term Debt Funds.

          Reply
          • OK.Thank you for valuable advice.

            Reply
  7. What are your view about Quantum Tax Saving Fund ?

    Reply
    • Dear Kshitiz,
      When I did the above test, it not comes under the scanner. Hence, I skip this fund.

      Reply
  8. Hi Basu,

    In 2018 I have invested in IDFC Tax Advantage (ELSS) Fund-Growth-(Direct Plan). As per the above top 5 ELSS funds shall I opt for Aditya Birla Sun Life Tax Relief 96 – Direct Plan for 2019 fiscal year or should continue with IDFC one?

    Thanks in advance for your advice.

    Reply
  9. Hi Basu,
    I would like know is it good to invest in the recently launched icici retirement fund NFO. I don’t have any pension/retirement product. My current age is 33 years.

    Thanks

    Reply
    • Dear Nilesh,
      Stay away from products which are labeled as RETIREMENT or PENSION.

      Reply
  10. Thanks for useful information about Tax saving with ELSS mutual fund. I have a plan for investment this financial year and this article is going to be very useful for me.

    Reply
  11. Hello Basu,

    I am investing Rs. 2000 SIP in ICICI Tax Saving fund from last 2 years, now to meet 80C tax deduction I want to add another 5000 in tax saving fund. Please suggest if should I go with existing ICICI Tax saving or start new tax saving sip in ABSL or Axis Long Term?

    Reply
    • Dear Ramdas,
      I have already shared my choices in above post.

      Reply
  12. Hi Basu sir, really nice and useful article. Are you planning simular post for Debt funds suggestions for 2019 as posted in 2018 this would help us.

    Reply
  13. What about Mirae ELSS?

    Reply
  14. Highly useful article which can be used for intelligent investment decisions. I am going to use it for my talks aimed at social awareness creation with senior citizens and other groups

    Reply
  15. Haven’t you overlooked the fact that ELSS funds attract LTCG tax?

    Reply
    • Dear Shivaparasad,
      Yes, due to Budget 2018, there is taxation in case of ELSS also.

      Reply
  16. How will you rate Franklin India taxshield? have been invested in this fund for over two years? Is it good thing to choose different ELSS funds every year or stick to only one food which is performing OK?

    Reply
    • Dear Mushin,
      I recommended the same last year. However, due to changed scenario, I excluded. But if you are investing the same, then please continue.

      Reply
  17. In the beginning you have mentioned that ELSS comes under EEE category: “ELSS falls under EEE tax rule (Exempt-Exempt-Exempt). There will be tax benefit during investment, no tax on whatever you earn and no tax at the time of withdrawal. This includes the divided declared from such funds are also tax-free in the hands of investors.” But later on in the taxation para, you mention that ELSS is taxed as per STCG/LTCG. Which is correct? Could you please correct the article accordingly? Thank you.

    Reply
    • Dear Raj,
      DDT for equity implemented from Budget 2018. Also, it is not payable by investors. Mutual Fund Companies will pay the same. When I say EEE, it is related to Growth OPTION.

      Reply
      • Oh ok, thank you for clearing it up. Could you please add this point in your other post “Mutual Fund Taxation FY 2019-20”? It will clear lot of confusion and give a very good understanding of taxation (As I thought from that post that all MFs come under STCG/LTCG taxation). Thank you.

        Reply
        • Dear Raj,
          ELSS are considered as equity funds. I have already mentioned the equity mutual fund taxation there also (and in this post also). Also, the confusion came up with many as I mentioned ELSS as EEE. However, due to the changed scenario from Budget 2018, it is not the case like that. Hence, I have updated the post again.

          Reply

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