Yesterday I wrote a post “Top 10 Best SIP Mutual Funds to invest in India in 2016“. In this post, I thought to list the Top 5 Best ELSS or Tax Saving Mutual Funds to invest in 2016. Because ELSS or Tax Saving Mutual Funds are main hunt of salaried.
- Refer our latest post related to Top 10 Best SIP Mutual Funds to invest in India in 2017 at “Top 10 Best SIP Mutual Funds to invest in India in 2017“.
What is the tax benefit of investing in ELSS or Tax Saving Mutual Funds?
Many of you who searching for ELSS or Tax Saving Mutual Fund might know the taxation of these products. To simplify, whatever you invest in ELSS or Tax Saving Mutual Funds, will be eligible for deduction under Sec.80C of IT Act. These funds will come with a lock-in of 3 years. However, do remember that if you invested say Rs.1, 00,000 in October, 2015, then you can withdraw it ONLY in October, 2018.
Also, the important mistake individuals who invest in ELSS or Tax Saving Funds commit is, they start investing through SIP and consider the first SIP date as investment date and maturity will be after 3 years from 1st SIP. However, do remember that each SIP is considered as fresh investment. Hence, each monthly SIP must complete 3 years. Therefore, if starts monthly SIP in October, 2015 then this will be free to withdraw in October, 2018. The second month SIP i.e. November, 2015 SIP will be eligible to withdraw in November, 2018 and so on.
As these funds are equity oriented mutual funds, the returns from such funds are totally tax-free. So people throng to such products. Because it gives a tax benefit while investing, shortest lock-in (only 3 years) product available among tax saving instruments and after 3 years the return is tax-free.
In addition, being locked-in product, the commission is also high in such products. Therefore, definitely advisers push to SAVE TAX. However, sadly neither advisers nor investors completely forget the basic principle of equity INVESTMENT i.e. equity investment is meant for the LONG TERM. Finally, after 3 years, if investors have some positive return, then they cheer up, otherwise blame it on EQUITY.
Recently almost all mutual fund companies renamed these ELSS or Tax Saving Mutual Funds from their earlier name as “Tax Saving” to “Long Term Equity”. For example, HDFC Tax Saver Fund now changed its name to “HDFC Long Term Advantage Fund”. This is to make sure that at least by name investors can feel that such funds are meant for the LONG TERM.
How I shortlisted the funds?
First, I screened the top 15 funds in each category based on their returns to benchmark since inception. Those among top 15 and with consistency score of 100% are below-mentioned funds.
- Axis Long Term Equity Fund
- Birla Sunlife Tax Plan
- DSP BlackRock Tax Saver Fund
- Franklin India Tax Shield
- ICICI Pru Long Term Equity Fund
- IDBI Equity Advantage Fund
- Reliance Tax Saver
- Religare Invesco Tax Plan
It is hard to choose the BEST among these. However, I finally arrived based on the risk-return criteria. Below is the list of “Top 5 Best ELSS or Tax Saving Mutual Funds to invest in 2016”. To arrive at the final decision, I checked the funds for below-mentioned tests and if the fund cleared all these tests and given me around a minimum of 80% score since inception, will be added to my list.
- Beta-Volatility measure and tell how much the fund changes for a given change in the Index. Lower the beta, lower the volatility. Hence, your fund must have lower beta.
- Standard deviation-It tells us how for a given set of returns, how much do fund returns deviate from the average. Lower the standard deviation, lower the volatility. Hence, your fund must have lower beta.
- Alpha-It is the risk-adjusted measure. By taking risks, how much the fund manager generated the return over the benchmark. Higher the alpha, higher the outperformance of the fund.
- Sharpe Ratio-It is the risk-adjusted measure. Higher the Sharpe ratio better is the performance.
- Sortino Ratio-It is the risk-adjusted measure. Higher the Sortino ratio better is the performance.
- Treynor Ratio-It is also be known as reward ratio. Higher the Treynor ratio better is the performance.
- Information Ratio-This is calculated by average excess return obtained compared to a benchmark and divides it by the standard deviation of excess returns. Higher the information ratio, the higher the consistency in beating the benchmark.
- Omega Ratio- It is a risk-return performance measure of an investment asset.
- Downside deviation-This is also be called as BAD RISK.
- Upside potential-This is exactly the opposite of Downside deviation.
- R-squared- It is a measure of how correlated the fund’s NAV movement is with its index.
- SIP Returns-For how many times the fund’s returns are above the index when we invest in SIP.
- Lump Sum Returns-For how many times the fund’s returns are above the index when we invest in a lump sum.
1) Axis Long Term Equity Fund-This is the fund which is catching intention of many investors. I noticed that few invested in this fund because it has provided good returns since 5 years.
Due to some data error, I can’t share the image of a risk-return analyzer. But it cleared the test since its inception from the lowest score of 83% to highest score of 100%. This seems too impressive to me.
2) Birla Sunlife Tax Plan-The fund is in the market since 1999. Below is the result of its consistency and reason for why I selected this fund.
You notice the consistency of fund since 8 years and it is the eye-catching among many.
3) Franklin India Tax Shield-This is one my favorite fund, which is in top since its launch in 1999 and below is the result of the risk-return analyzer.
4) ICICI Prudential Long Term Equity Fund-This is the one more fund, which I suggested last year, along with Franklin India Taxshield Fund and I again recommend this fund.
5) DSP BlackRock Tax Saver Fund-This is the fund which is in the market since 2007 and consistently performed well. Hence, I included this fund in my list.
How these funds performed in case of returns?
You noticed that only 3 funds from above selection are more than 10 years old funds. Hence, I stress to consider those funds as a priority.
Hope this information will be useful in selecting the Best ELSS or Tax Saving Mutual Funds to invest in India in 2016.
View Comments (367)
Hi Vasavraj,
Very good article. keep up your good work.
My 80C investment is:
1. Axis long term - Direct growth - ELSS - Rs 5000/month.
2. Which other ELSS I should choose? DSP BR or Birla SL tax 96?
3. Also, Is it okay to distribute the ELSS to 3 funds or keep it in 1 MF only?
Saikat-In my view one fund enough. However, if you feel to add then you may go and select anyone of above.
1.I am a retired person.My age is 64 years.I have some tax liability due to FD`s in banks.Around 60000 is my tax liability.Under these circumstances,which tax saving mutual fund will be better for me??
2.Can i withdraw as soon as the lockin period is over?
3.If i invest this year under lumpsum investment,i believe this can be shown in my return only for the next assessment year only??
4.In the subsequent years,again i have to make investement??
5.Is these any SIP scheme which will work for only 3 years at the msot maxiumum,since i am already 64 years,i want to withdraw in another 3 years or so
Mohan-Whether your CONCERN is only Tax-Saving??
Main concern is tax saving.But in the process,if some savings is created,then i do not mind
Mohan-This is completely wrong process. Your main concern is to meet your financial goals.
Sr, I am planning to invest in mutual fund SIP of rs 3000 for tax saving and earnigs.
Please suggest best 3 sip plans.
Santesh-Refer my above post and also the latest one at "Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017".
i have taken 3 sips TAX SAVING DSP ,SBI MAGNUM AND RELIENCE FOR FIVE YEAR.THIS IS RIGHT OR WRONG
I INVESTED 1000 RS EACH MONTHLY.
Bharat-Without knowing your time horizon and financial goals, how can I assume??
sir
please let me know the risk in a direct plan.
Jagadish-Risk of blind investing for a sake of saving cost of middlemen. Risk of not knowing what is the product and how it can benefit you. Risk of not knowing how the volatility works and how to manage that. Also, risk of not knowing what is re-balancing or review of fund. But at the same time your adviser don't know all these stuffs then there also a risk. Hence, a final solution is Do It Yourself.
Thank you sir
Dear Basuji
I am doing job in Govt. Sector.
Already my 4 SIPs are running Like Birla Sun Life Tax Relief 96, Tata Rerirement, Axis Long Term Equity and Reliance Money Manager. i also Invest PPF, PLI, LIC and Term Plan.
I want to start New SIP For rs 1000/- for 20 Years,
Suggest Me best AMC & Best SIP
With Regards,
Dipak Modi
Modi-Why can't the same funds?
I want to invest 50000/- lump sum in two funds(50:50) ELSS for tax saving and good returns. my time horizon is 5-10 years.kindly suggest two diversified funds.
thank you
Davinder-They are listed in above post.
Hi Basavaraj,
Very useful article and the comments section gave more insight. I had a personal query as well please do respond.
Most websites that projected ELSS tax saving funds showed avg 20% return in 3years (3year lock in for tax elss). But in the comments section you said, don't invest unless you are looking for waiting 10+ years. Are the projected returns false? Why do you say if we are looking for 5 years of investment, then equity is not advisable?
Thank you, Sowmya
Hi Basavaraj, Please reply.
Sowmya-Sorry for missing the reply. Yes, I always defend that you must enter into equity instruments only if your time horizon is more than 5 years. Many portals may say 20% returns for a period of 3 years, but you have to remember that there may be negative 20% returns also. Are you ready for such volatility? None will teach you about how to cope with volatility of equity market. We always look for positive or fancy returns. But what if immediately after your investment market start to fall??
Volatility defuse as long as you invest. Hence, I alway suggest equity as a long term investment but not for short term. If someone suggesting for short term goals, then you must believe that either he don't know what is volatility or he is the SELLER of mutual fund products.
Thank you for clarifying. Right.. so they are projecting only positive returns. And it seems market is slowing/dropping now with indo-pak problems.
As a 29 year old, what investment would you suggest I take? I have already invested in 5-year FD, PPF and unit linked HDFC pro-growth fund (5years). Nothing long-term though because who knows about tomorrow?!
Thank you for your time!
Sowmya-Perfect...who knows about tomorrow? But what about your retirement or kids education and marriage goals? Are they uncertain or certain goals? How you are ready for such goals?
Thank you for your reply!
You are right about those goals, which is why I invested in moderately safe options of short term. Because when somebody goes Long term, it is with confidence and surety that a job will be at hand.
With this uncertainty of not having a job five years down the line, I decided for short term investment only, even if it requires lump sum investing.
Sowmya-Thanks for understanding my views :)
Dear Basu,
Currently I am investing 5000 pm from 2015 in ICICI prudent long term and axis long term both are elss 2500 each, now I want to invest 5000 more pm please suggest in which elss fund should be considered
Kamal-What is your timeframe? Also, why can't infuse more money into the same existing two funds?
Time frame is long term..but how to increase existing installment or two new installment need to be Set up,my age is 32 and reason for investing in ELSS is 1.2 lakh in 80 C,pls suggest best suitable
Kamal-You can increase the SIP by registering one more under same folio.
Can you pls suggest two or three best ELSS sip funds to invest for long term goals… I’m planning to invest 7500 to 8000 per month..
I am planning to invest in ELSS Mutual funds SIP.
I am planning to invest 7500 to 8000.
Also planning to invest in the beginning of the month one sip on all mutual funds, middle of the month one sip on all mutual funds and end of the month of the month one sip on all mutual funds..
for ex: if i want to invest in axis LT tax saving fund 1500 per month. I will split 1500 into three sip’s as follows,
between 1 to 10 date of the month 500 sip
between 11 to 20 date of the month 500 sip
between 21 to 30 date of the month 500 sip
is this good method to follow or only one sip any day of the month is good.if so suggest better dates to invest sip every month.
Pls suggest which are all elss sip mutual funds from the below list can I invest and how much i can invest on each as per ur selection:
Axis Long Term Equity
Birla Sun Life Tax Relief 96 D
Franklin India Taxshield Fund
ICICI Prudential Long Term Equity (Tax Saving)
Reliance Tax Saver (ELSS) Fund-G
BNP Paribas Long term 23
DSP BlackRock Tax saver
Sundaram Taxsaver D
HDFC Taxsaver Fund
Hari-There is no such logic that spreading your SIP gives you more return. I listed my top funds. You can choose anyone from the list.