Top ELSS Fund to Invest in 2017-18


Top ELSS Fund to Invest in 2017-18

As we close in on the final quarter of the financial year, it is obviously time to start working towards finalizing your tax calculations for the year. In recent years, old favourites such as PPF, EPF, bank tax saver deposits seem to have taken a back seat and ELSS mutual funds seem to be the flavour of the day. This change in tax saver investments has mainly occurred due to the potentially higher ROI offered to investors by mutual funds. However, some existing ELSS investors have run into problems when making their ELSS investments this year.  This problem relates to the historic high valuations that equity markets have scaled in recent months and this has made even some of old favourites like HDFC, ICICI and SBI mutual fund schemes seem less profitable investments. However, for new investors seeking alternatives to the old school investments, there are ELSS investments options aplenty in India. 

Determining Suitable ELSS Investments Options

Selecting a specific ELSS fund as a better tax saving mutual fund as compared to others is not a straight forward task. This is because multiple factors need to be considered before making this determination. For starters, there is the matter of returns. Most new investors take into account just the short term returns offered by the fund and that’s a mistake. This is because during specific periods such as market boom years, quite a few funds will tend to outperform their more conservative peers by making risky investments. However, these funds may be hard-pressed to maintain their gains in the future as equity markets start to correct themselves. It is thus best practice to consider a scheme’s long-term returns of at least 5 years when selecting the best ELSS funds to invest in. Moreover, you should make sure that the returns of funds are considered within its category peers so that you get accurate actionable information. 

Another consideration when seeking long-term investments is diversification. You should never invest in just one or two funds instead consider having a portfolio comprises of 5 to 6 good funds preferably spread across multiple established fund houses. When selecting these options, you should keep in mind that an established fund house is better placed to manage a fund effectively. From your perspective, an efficiently managed fund features a long history of delivering superior returns during bull markets and controls losses better than its peers during bearish conditions. By keeping these key things in mind, you would reduce your market risk significantly even if it is impossible to eliminate the risk inherent to market linked investments such as ELSS. You can use a SIP calculator to estimate your future returns based on prior performance even though returns from a scheme are not guaranteed. Based on the above criteria, the following in no particular order, is our short list of top ELSS funds to invest in for the 2017-2018 financial year. 

Aditya Birla Sun Life Tax Relief ’96 

Aditya Birla Sun Life Tax Relief ’96 is an ELSS fund that has been around for over two decades and its track record has been nothing short of stellar. This fund’s returns since launch are in excess of 25% which is a level of performance that few funds can claim to have achieved. Moreover, this fund’s 1-year returns have exceeded 37% which is much higher than the benchmark and almost all its category peers. A closer look at the scheme’s current portfolio shows that this ELSS is mid-cap biased. This is a key reason for the scheme’s strong performance in equity markets where numerous multi-baggers have emerged in the mid-cap category during the previous year. However, the scheme does have close to 40% of its capital invested in large-cap equities, which diversifies the fund’s overall portfolio across capitalization and helps reduce overall portfolio volatility of the scheme. You should definitely consider including this top ELSS fund as a part of your portfolio provided you are risk tolerant enough to consider investing in mid-cap equities/equity derivatives for the long term.     

DSP BlackRock Tax Saver Fund 

DSP BlackRock Tax Saver Fund was originally launched in January 2007 and during its initial years, the scheme’s performance left a lot to be desired. However, the performance of this scheme has improved significantly in recent years especially after a change in the fund’s management occurred in 2015. Due to its conservative performance during its early years, this scheme features relatively low returns since launch value of around 15%, which is lower than many of category peers. However, the 5-year returns of this fund have been recorded at close to 20%, which is in line with the expectations that investors have from their equity investments. Historically, this fund had a large-cap tilt, which has probably affected its capability of generating high returns during its early years. However, even though this fund has continued to retain this bias towards large-cap investments, the current investment selection mechanisms possibly instituted by the new management have worked out favourably for this scheme. You might not be inclined to call this the best tax saver fund out there but this scheme does have the potential to be a top performer in the future. From an investment standpoint, most analysts agree that the DSP BlackRock Tax Saver Fund is a good choice for long-term capital appreciation.      

Axis Long Term Equity Fund   

Axis Long Term Equity Fund is currently India’s largest ELSS fund in terms of its AUM (assets under management) value and with good reason. Launched in December 2009 just after the subprime crisis, this was one of the few mutual funds to have managed positive growth every year since its launch seemingly irrespective of existing market conditions. The returns since launch of this fund are recorded at the relatively conservative level of around 19%, which is mainly due to this fund’s lack luster showing in the past couple of years. However, experts agree that the fundamentals of this scheme are strong and the scheme seems to have started recovering lost ground in the past few months. The overall portfolio of this scheme is large-cap equity oriented which comprise an estimated 68% of overall assets while mid and small cap equities make up the balance. In case you are investing for the long term with an interest for significant capital appreciation, this tax saver fund from Axis is definitely be one of the best ELSS funds to invest in right now.  

Reliance Tax Saver (ELSS) Fund

In terms of AUM, Reliance Tax Saver (ELSS) Fund is second only to the Axis Mutual Fund AMC-managed tax saver fund in India. Historically, this fund has followed a growth strategy by mainly investing in value companies in the mid and small-cap segments. In spite of this scheme’s mid and small-cap affinity, this ELSS has maintained significant large-cap equity investments that have historically accounted for an estimated 25% to 45% of the fund’s portfolio. The long-term returns offered by this fund have been much higher than in benchmark with its returns since launch maintained at 16.60%. As per analyst expectations, the strong performance of this fund is expected to continue in the near term which makes it a good ELSS investment opportunity during the 2017-2018 fiscal.     

L&T Tax Advantage Fund 

Though it has been around for over a decade, the L&T Tax Advantage Fund has started attracting greater interest from investors recently due to its impressive performance during the past couple of years. Such outlier performance is no small feat considering that 2016 was considered to be a difficult year for equity markets in general. In terms of investment strategy, the scheme is best described as a growth-oriented mutual fund with an affinity for large-cap equity investments. What’s more, this scheme’s investments are highly diversified across various sectors which provide it with a high potential for long-term returns. Some of the key sectors this scheme is invested in include financial, construction, services, engineering and automobiles to name a few. You should consider investing in this scheme provided you are seeking a long-term diversified equity investment capable of generating potentially high returns.      

  Key Statistics of Selected funds at a glance

*The returns data is as per fund NAV obtained on the 5th of December 2017. AUM data of funds is according to fund data obtained on 31st October 2017. Please note that past performance does not in any way imply future performance of mutual fund schemes. 

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