For salaried employees, the deadline to submit the provisional tax saving investment proofs is fast approaching. Most of the employers collect the documents in January. During this period investors/employees who have not done their tax planning rush to buy life insurance policies or some other tax saving investments.
Equity Linked Tax Saving Mutual Fund Scheme has been one of the best investment avenues both in terms of tax benefit and wealth creation. ELSS funds are best suited for self-employed individuals too.
But, with the introduction of (optional) New Tax Regime, the tax benefit on ELSS Mutual Fund investments (u/s 80c) will no more be available for FY 2020-21 / AY 2021-22.
Also Read: NPS Calculator: Key things to know about your ₹6000 monthly investment
What does the New Tax Regime say?
The Finance Bill 2020 introduced new tax regime, offers an optional lower rate of income tax to individuals with slab rates of 15% and 25% in addition to the 10%, 20% and 30% slab rates.
Individuals opting to pay tax under the new proposed lower personal income tax regime will have to forgo almost all tax breaks that you have been claiming in the old tax structure.
In this post, let us discuss – Which are the Best Tax Saving ELSS Mutual Funds 2021? Which are the top performing Tax Saving Mutual Fund Schemes to invest in 2021 and beyond? Which ELSS Fund is best to invest in FY 2021-22? What are the best ELSS SIP Funds?…
Best Tax Saving Mutual Funds 2020
In my last review of ELSS Funds, I have listed below ELSS mutual funds that can be considered for investment;
- Axis Long Term Equity Fund
- Invesco India Tax Plan
- Birla Sun life Tax Relief ’96 Fund
- DSP Blackrock Tax Saver Fund
- TATA India Tax Savings Fund
Let us now see if these funds have again made it to the list of this year’s Best ELSS Mutual Funds to invest in 2021-22..
Comparison of Top Performing ELSS Funds
When we are making a comparison of equity mutual funds, it is ideal to track not only the investment returns generated by these funds but also the ‘risk ratios’ pertaining to them.
The volatility of returns generated by a mutual fund scheme can be measured by some important risk ratios like;
Standard Deviation
- Beta
- Alpha
- Sharpe Ratio
- R-Squared Ratio
- Upside & Downside Ratios
Below info-graphic gives us an idea about ideal ratio/percentage that can be considered while selecting a mutual fund scheme;
Top 5 Best Tax Saving ELSS Mutual Funds 2021-22
We currently have around 38 funds under the ELSS Fund category. The average returns from ELSS fund category are around 13.5% and 12% in the last 5 and 10 years respectively.
In my opinion, below are the consistent and best ELSS Mutual Funds to invest for tax saving and long term wealth creation;
- Axis Long Term Equity Fund
- Aditya Birla Sun life Tax Relief ’96 Fund
- Canara Robeco Equity Tax Saver
- DSP Blackrock Tax Saver Fund
- Invesco India Tax Plan
The only change that I made to the list when compared to last year’s is – I have replaced TATA India Tax Savings Fund with Canara Robeco Equity Tax Saver.
In case, you have been investing in TATA India Tax Savings Fund, you may continue with your investment plan. But, keep on eye on its standard deviation.
You may also track the performances of Mirae Asset Tax Saver Fund and Kotak Tax saver Plan as well.
Axis Long Term Equity Fund
It is the most popular scheme of the ELSS category with around Rs. 27,000 crore worth of assets under management.
Follows a focused investment style with current investment in a total of 32 stocks. As for asset allocation, it currently has large cap (83%) oriented allocation and has 16% in the mid/small caps.
A great performer in the market downturn and the fund has consistently beaten average category returns for the past many years. It has given around 17% returns in the last 10 years.
Axis LTE has a very good Capture Ratio. (Capture ratio is calculated as Upside Ratio divided by Downside ratio. For example, a fund with an upside-capture ratio of 100% and a downside ratio of 80% would have an upside/downside ratio of 1.25. Any ratio above 1 means that a fund does a good job of capturing gains during bull phases while lessening the impact of bear markets.)
The Financials, Services and Technology related stocks have been its favorite picks.
Aditya Birla Sun life Tax Relief ’96 Fund
One of the oldest and most consistent schemes of the mutual fund market. Since inception (1996), it has provided an annual average return of more than 23%.
It follows a mid cap and large cap-oriented style of investing with a mildly diversified portfolio of 40 stocks.
The fund has around 55% allocation to mid/small cap stocks. This could be one of the major reasons for its under-performance in the last couple of years.
Also, it has a very high portfolio turnover ratio which means the stock selling and picking is very frequent, making this scheme a bit aggressive.
An existing (aggressive) investor as well as a new investor can consider investing in this fund for long-term.
The Financials and Healthcare related stocks are its favorite picks.
Canara Robeco Equity Tax Saver
The recent performance of this fund has been fantastic.
The standard deviation and Aplha ratios have improved a lot.
It follows large cap-oriented & mid-cap style of investing with a well diversified portfolio of 50+ stocks.
The fund has around 70% allocation to large-cap stocks and 30% allocation to mid/small cap stocks.
The Financials and Technology related stocks are its favorite picks.
DSP Blackrock Tax Saver Fund
This fund has been a consistent long-term performer, with a track record of beating the benchmark and category returns at every cycle. But, watch-out for slightly higher standard deviation.
Follows a diversified portfolio and as of now has investments in 55+ stocks picked across different sectors.
Changes the sector allocation as per the market trends to ensure that investors get the best value for their money in the long-term.
The fund primarily follows large-cap orientation and has an allocation of around 70% to large cap stocks.
The Financials, Technology & Healthcare related stocks have been its favorite picks.
Invesco India Tax Plan
One of the best schemes provided by Invesco Mutual Funds.
The fund generated around 14% (CAGR) returns in the last 10 years and is ranked at no.2 in terms of performance.
The Financials, Technology & FMCG related stocks have been its favorite picks.
