Categories: Mutual Fund

Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017

In my last post, I listed Top 10 Best SIP Mutual Funds to invest in India in 2017. Now I am listing here the Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017.

Note:-Refer my latest post on this topic “Top 5 Best ELSS Tax Saving Mutual Funds 2018-2019“.

Before proceeding further, let us first understand the returns of the funds which I recommended last year.

You noticed that since one year Axis Long Term Equity Fund is the only fund which underperformed to it’s benchmark. Rest of the funds are way ahead. This may be due to the style the fund adopted and the benchmark it set against other funds.

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.
  • 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 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.
  • ELSS falls under EEE tax rule (Exempt-Exempt-Exempt). There will be no tax 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.
  • 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 40:60.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 30:70.

# 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.

How I selected Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017?

I will first screen the top 15 funds based on their returns to benchmark since inception. The funds who consistently beaten the benchmark are listed in that 15. Once I have the list in my hand, then I select the funds based on Risk-Return Analyzer.

Many simply select the funds based on eye-catching returns. However, at what cost the fund is giving you a better return? To what extent it protects my investment during a downturn is what differentiate from good fund to bad fund.

Again, I am not saying that these 5 funds alone be considered as “Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017”. There may be fewer other funds, which are good to compete with these funds. However, I may be biased towards few Mutual Fund Companies (purely on their size and how long they are in MF business in India). Below are the metrics I used to arrive at finally selecting the funds.

If the fund cleared all these tests and given me around a minimum of 80% score since inception, will be added to my list.

  1. 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.
  2. 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.
  3. 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.
  4. Sharpe Ratio-It is the risk-adjusted measure. Higher the Sharpe ratio, better is the performance.
  5. Sortino Ratio-It is the risk-adjusted measure. Higher the Sortino ratio, better is the performance.
  6. Treynor Ratio-It is also be known as reward ratio. Higher the Treynor ratio, better is the performance.
  7. 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, higher the consistency in beating the benchmark.
  8. Omega Ratio- It is a risk-return performance measure of an investment asset.
  9. Downside deviation-This is also be called as BAD RISK.
  10. Upside potential-This is exactly the opposite of Downside deviation.
  11. R-squared- It is a measure of how correlated the fund’s NAV movement is with its index.
  12. SIP Returns-For how many times the fund’s returns are above the index when we invest in SIP.
  13. Lump Sum Returns-For how many times the fund’s returns are above the index when we invest in a lump sum.

Below are my Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017.

Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017

As I pointed above, I first shortlisted Top 15 Best ELSS Tax Saving Mutual Funds. They are as below.

  1. Axis Long Term Equity Fund (Consistency Score 100% and Fund Age 6 Yrs)
  2. Birla Sun Life Tax Plan (Consistency Score 100% and Fund Age 12 Yrs)
  3. Birla Sun Life Tax Relief 96 (Consistency Score 100% and Fund Age 12 Yrs)
  4. DSP BlackRock Tax Saver Fund (Consistency Score 100% and Fund Age 8 Yrs)
  5. Franklin India Taxshield Fund (Consistency Score 100% and Fund Age 12 Yrs)
  6. ICICI Prudential Long Term Equity Fund (Tax Saving) (Consistency Score 100% and Fund Age 12 Yrs)
  7. Invesco India Tax Plan (Consistency Score 100% and Fund Age 8 Yrs)
  8. Tata India Tax Savings Fund (Consistency Score 100% and Fund Age 12 Yrs)
  9. Reliance Tax Saver Fund (Consistency Score 90% and Fund Age 10 Yrs)
  10. BNP Paribas Long Term Equity Fund (Consistency Score 89% and Fund Age 9 Yrs)
  11. IDFC Tax Advantage (ELSS) Fund (Consistency Score 86% and Fund Age 7 Yrs)
  12. Edelweiss ELSS Fund (Consistency Score 83% and Fund Age 6 Yrs)
  13. Canara Robeco Equity Tax Saver Fund (Consistency Score 67% and Fund Age 12 Yrs)
  14. SBI Magnum Taxgain Scheme (Consistency Score 58% and Fund Age 12 Yrs)
  15. HDFC Taxsaver Fund  (Consistency Score 50% and Fund Age 12 Yrs)

Among these top 15 ELSS or Tax Saving Funds, I have to select Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017. They are as below.

1) Birla Sun Life Tax Plan-G

My first choice this time among “Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017” is Birla Sun Life Tax Plan. I excluded Axis Long Term Equity Fund due to it’s underperformance score of 20 for a year. Even though you may feel it as a knee-jerk reaction, but giving the best track record old funds availability, I thought to rely on older than the new fund.

The risk-return score of Birla Sun Life Tax Plan is as below.

Since 10 years the fund is performing nicely. So why not pick this fund as my first choice?

2) Birla Sun Life Tax Relief 96-G

My second choice is again within Birla AMC. The fund is Birla Sun Life Tax Relief 96. Below is the consistency score fo the fund.

3) DSP BlackRock Tax Saver Fund-G

Third among Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017 is DSPBR Tax Saver Fund-G. This is almost 8 years old fund with consistent track record. Below is the track record of risk-return analyzer score of the fund.

4) Franklin India Taxshield-G

Fourth among top 5 is Franklin India Taxshield-G. You notice that even though consistency is 100% but when it comes to the risk-return analyzer, since a year the fund is giving us the score of 40 (better than Axis Long Term Equity Fund). But I will not deter with the one-year drop. I go ahead and recommend you the same. Below is the risk-return analyzer score of the fund.

5) ICICI Prudential Long Term Equity Fund-G

Last among Top 5 is ICICI Pru Long Term Equity Fund-G. Even though fund score is 75 for a year, I still suggest the best fund for investing.

These are my Top 5 Best ELSS Tax Saving Mutual Funds to invest in 2017 among ELSS category of funds. Please note that the benchmark set for each fund is different. Also, you must analyze where the fund is investing. Based on that you may take a decision. After all, it is my BEST, but it does not mean that it must be UNIVERSAL BEST.

Refer my earlier posts related to Mutual Fund Investment in 2017-18

BasuNivesh

View Comments

  • Sir, I want to save my income tax. I have taken LIC but again this year I want to invest in ELSS to save tax & earn some attractive return after 5 years.
    Please guide me & tell me where & how to invest.

    • Dear Mahadev,
      Whether your priority is SAVE TAX or reach your FINANCIAL GOALS?

  • Hello Sir,
    I am very new to equity fund. I am planning to start SIP in in two different ELSS funds. I have selected a few ELSS funds based on past 3-5 years performance and ratings which are as follows:
    1. IDFC Tax Advantage Direct
    2. BSL Tax relief 96
    3. Motilal Ideal Most focussed long term Fund
    4. Mirae asset Tax Saver

    Kindly help and suggest to choose from.

  • Hi Basu,

    Want to learn more about Upfront Commission / Trail Commission in case of ELSS Mutual Funds. ?
    How does that impact the returns ?

    Thanks in advance.

    • Deepen-You can check the commission structure with respective mutual funds. It usually at higher side than the regular funds.

  • Hello sir,
    First of all, thanks for sharing your knowledge with us.
    Sir. I have to invest 100000 in tax saving mf. Right now, I have four months. And funds are birla 96 tax saver and birla tax plan or dsp. So, what can I do? lump sum or 3 sip of 8000 in month. After 31st amount sip decreases to 2000 to 3000 per month. Amount not required for 5 to 8 years.my plan is good or risky?
    Please give me your valuable advise.

    • Umang-If you have long term view (5+ years) and did proper asset allocation between debt and equity, then you can go ahead with lump sum also. Otherwise, spread that to the maximum of 3-4 months.

      • Hi Sir,

        I want to invest 12k -15k in Elss for tax saving as well as wealth creation for at least 10years bracket.

        I have started this month with 3000 in dspbr tax saver fund and another 3000 in Birla sun Life tax relief fund.

        I would like to invest around 6k or more, could you suggest any other MFs?

        Or suggest other type of MF apart from Elss?

        Also I am hedging around 15k in gold every month.

        Thanks in advance.

      • Sir, these funds are choosing as per your list given. But any suggestions for changes. I will take only 2 funds. Birla+birla or birla+dsp or birla+axis?

  • Great blog on investment ideas for investors.What is the minimum duration of investment in ELSS fund? I am 54 now and have another 6 to 8 year for retirement and can invest 5000 to 10000 per month within limit of 150000 as tax rebate.If i have to invest for 5 or 6 year should i invest a lump sum amount each year or should i go for monthly sip.

    • Shrikant-If your time horizon is around 5+ years and did the proper asset allocation between debt and equity, then go ahead and invest. But never invest in ELSS for the sake of TAX SAVING or thinking this product can be taken back after 3 years lock-in.

  • Hi Sir,
    I want to invest 2000 per month, for 10-15 years for growth as well as tax saving.
    will you provide some ELSS ?
    and one more thing, what is best Growth or Devidend ?

    • Amit-The list is already available above. If your aim is to accumulate money for 10-15 years, then growth option is the best.

  • Hi,

    My Mother has taxable income from pension and other Deposits. She is 67 years old . She has to invest around 75000 per year to save Tax. Could you please suggest me some good mutual funds to save tax and also the amount to invest in each fund.

  • Hi Mr. Basavaraj,

    I'm planning to invest lumpsum in ELSS. I have already invested Rs. 25,00 each in AXIS Long Term Equity & Birla Sun Life Tax Releif 96 plans. I'm still planning to invest Rs. 75,000 as a lumpsum.
    1. Is Tata INDIA Tax savings fund good to invest for Rs. 50,000? I prefer this fund because the NAV value is low and is performing good, and I can wait for 5 years. Please provide your thoughts.
    2. Please suggest when is the right time to invest as a lumpsum in this financial quarter. I know this is a bit hard to say, but what factors can i look into before lumpsum investment.

    Your information is really helping. I have already taken Term plan after reading your blog as i understood the value of it. Now planning for ELSS.

    • Krishna-1) How you selected this fund and who said you that LOWER NAV fund is best?
      2) If you have more than 5+ years view and did proper asset allocation, then the best time to invest is NOW.

      • Hi sir,
        The selection is mainly based on the CRISIL rating and exploring through few sites (Money Control, Value Research), however i'm not certainly sure that this is a good fund. My idea is over a period of time if the NAV value increases and units are more, the Returns will be good. Please suggest whether can do investment in this fund?
        Below is my financial planning. Any changes can be done?
        1. PPF- Rs. 75,000 per annum
        2. ELSS- Rs. 75,000 - 1 L per annum (AXIS Long term equity, Birla Sun Life Tax Relief 96). Are these funds good to invest?

        • Krishna-Investing in low NAV or low stock price is the biggest MYTH many investors commit. The growth that matters than the number of units or stocks you are holding. Suppose you invested Rs.1,000 in a fund whose NAV is at Rs.10 and me invested same Rs.1,000 in a fund whose NAV is at Rs.100. Then assume that at the end both funds generated 10% return. Then irrespective of NAV and number of units you are holding, the returns for me and you is Rs.1,100. Hope I cleared your BIGGEST MYTH.
          Why are you so concerned about tax saving?

  • Would it be advisable to replace Axis long term equity fund with Birla SL tax relief 96 fund, due to its recent underperformance?
    I have been investing in Axis long term equity fund for the last 1 year.

    • Sumit-One year is not sufficient time to judge a fund. Wait for another year or so, then take a decision.

      • I was considering the change also due to my portfolio overlap.
        Axisi long term equity
        SBI Bluechip
        Mirae Asset Emerging Bluechip
        Motilal Oswal MOSt Focussed multicap 35
        DSP-BR Micro Cap

          • Birla Sun Life Tax Relief 96 overlap:
            Motilal Oswal MOSt Focussed Multicap 35 – 8%
            SBI Bluechip – 20%
            Mirae Asset Emerging Bluechip – 10%
            DSP-BR Micro Cap - 0%

          • Axis long term equity overlapping with following funds:
            Motilal Oswal MOSt Focussed Multicap 35 - 31%
            SBI Bluechip - 26%
            Mirae Asset Emerging Bluechip - 5%
            DSP-BR Micro Cap - 2%

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