Best ELSS Funds In 2018: Don’t Blindly Chase Top Performers   Jan 10, 2018


HRA Tax

It is officially tax-saving season – a time to look back over the current financial year with an eye on maximising deductions and tax credits and lowering the tax burden.

Public and private sector employees have already started receiving emails from their human resources (HR) or accounts department to submit proof of tax-saving investments. Taxpayers are probably scurrying to invest in tax-saving products to avoid that dreaded salary cut in the months of January to March 2018.

Under Section 80C of the Income Tax Act, you can claim a deduction of up to Rs 1.50 lakh. There is a wide range of investments that qualify for a deduction, such as, Public Provident Fund (PPF), 5-year Tax-saving Bank Fixed Deposit, Equity Linked Saving Schemes (ELSS) of mutual funds, National Savings Certificate (NSC), etc.  You can claim an additional deduction of up to Rs 50,000, if you have invested in the National Pension Scheme (NPS).

Thus between holiday parties, marathons, and long weekend breaks, you should set aside some time in this last quarter of the financial year for tax planning. It may be a bit too late, but it is better late than never.

As on March 31, 2018, almost everything for the financial year 2017-18 is set in stone. And then, there is little you can do to earn extra tax deductions or rebates.

ELSS funds for long-term wealth creation

HRA Tax

Those who do not mind the high risk of equity investments prefer to invest in ELSSs among all the other tax-saving products. Especially now, as shares of companies present in the S&P BSE Sensex and Nifty 50 are hitting new all-time highs. Due to the massive gains over the past few years, the attractiveness of equity mutual funds has increased. 

Thus, in the last quarter of 2018, the interest to know the best ELSS funds is growing.

Among the tax-saving products, ELSSs are the most liquid with the shortest lock-in period of three years. They are also among the riskiest. When investing in ELSSs, you should keep a long-term investment horizon of five years or more. By keeping a long-term investment horizon, you can benefit from compounding and multiply your wealth.

There is no dearth of choices in the ELSS mutual fund category. Hence, you need to analyse the fund performance minutely before investing. Remember, that under ELSS, the lock-in is three years. Thus, if you pick the wrong fund, you will have to bear the cost of underperformance for the entire period.

The performance of ELSS funds can vary wildly over the years. A top ELSS fund in one period may not necessarily be the best ELSS fund for the next period. Thus, you need to pick the right ELSS fund, one that has performed consistently and one that has generated a superior risk-adjusted performance.

Let us have a look at the three-year return of the top ELSS funds from three years ago (as on December 31, 2014). We will then compare these funds to the top performing ELSSs over three years, as on December 31, 2017.

Top Performing ELSS Funds as on December 2014

Scheme Name 31-Dec-11
To
31-Dec-14 (%)
Rank
2011-14
Rank
2014-17
Reliance Tax Saver (ELSS) Fund 40.28 1 18
Axis Long Term Equity Fund 37.22 2 20
Principal Tax Savings Fund 33.38 3 4
Aditya Birla SL Tax Relief '96 (ELSS) 32.00 4 6
ICICI Prudential Long Term Equity Fund 31.67 5 34
DSP BlackRock Tax Saver Fund 31.37 6 10
Aditya Birla Sun Life Tax Plan 31.18 7 8
IDFC Tax Advantage (ELSS) Fund 30.54 8 3
Invesco India Tax Plan 30.28 9 16
BNP Paribas Long Term Equity Fund 30.25 10 23
HSBC Tax Saver Equity Fund 29.75 11 13
Franklin India Taxshield 29.10 12 26
SBI Magnum TaxGain'93 28.91 13 27
JM Tax Gain Fund 28.84 14 15
HDFC TaxSaver 27.60 15 28
Data as on December 31, 2014
Returns are compounded
(Source ACE MF, PersonalFN Research)

PersonalFN ranked the performance of 36 tax-savings schemes that were launched on or before December 31, 2011. In the table above, Reliance Tax Saver and Axis Long Term Equity Fund lead the list of the top ELSS funds for the three-year period that ended December 31, 2014.

Principal Tax Savings Fund, Aditya Birla Sun Life Tax Relief '96, ICICI Prudential Long Term Equity Fund and DSP BlackRock Tax Saver Fundfollowed closely behind.

But among these five funds, just two— Principal Tax Savings Fund and Aditya Birla Sun Life Tax Relief’96 continued their top ranking performance. The others featured lower down the order when ranked as per their performance in the following three-year period (2014-17).

Which were the top ranking ELSS funds in the past three years? Take a look below:

Top Performing ELSS Funds as on December 2017

Scheme Name 31-Dec-14
To
31-Dec-17 (%)
Rank
2011-14
Rank
2014-17
Escorts Tax 19.45 35 1
Tata India Tax Savings Fund 18.80 20 2
IDFC Tax Advantage (ELSS) Fund 18.09 8 3
Principal Tax Savings Fund 17.53 3 4
L&T Tax Saver Fund 17.50 26 5
Aditya Birla SL Tax Relief '96 (ELSS) 17.33 4 6
Aditya Birla Sun Life Tax Savings Fund 17.01 34 7
Aditya Birla Sun Life Tax Plan 16.76 7 8
BOI AXA Tax Advantage Fund 16.71 31 9
DSP BlackRock Tax Saver Fund 16.57 6 10
L&T Tax Advantage Fund 16.56 30 11
Sundaram Diversified Equity 15.07 28 12
HSBC Tax Saver Equity Fund 14.77 11 13
HDFC Long Term Advantage Fund 14.54 16 14
JM Tax Gain Fund 14.25 14 15
Data as on December 31, 2017
Returns are compounded
(Source ACE MF, PersonalFN Research)

There were some unexpected performers over the past three years. Among the top five performing ELSSs were Escorts Tax, Tata India Tax Savings Fund, IDFC Tax Advantage Fund, Principal Tax Savings Fund, and L&T Tax Saver Fund. Among these, just Principal Tax Savings Fund was present among the top 5 in the earlier period as well.

Just seven funds were present among the top 15 funds in both the periods. This is concerning because there were just 34 ELSS funds on the list. Thus, if you select ELSS funds solely by the basis of past performance, you may end up disappointed. So before locking-in your investment for three years, think again,

How to pick the best ELSSs in 2018?

HRA Tax

When selecting ELSSs or any mutual fund for that matter, you need to choose wisely and look for consistency in performance. Escorts Tax, for example, ranked at the bottom of the list in the 2011-14 period, but shot up to the top of the list in 2014-17. And, a scheme like ICICI Prudential Long Term Equity Fund, which as among the top 5 in 2011-14, featured at the bottom of the list in 2014-17.

You also need to pay heed to tax planning. While there are a host of provisions under the Income Tax Act and numerous investment avenues; in this video tutorial, we will take you through how to use mutual funds in your tax planning exercise. Also, the aspects you must consider while investing in them, so as to save tax through this investment instrument the prudent way.

Tax Planning with ELSS Funds


 
While we acknowledge that, even the best systems and processes cannot predict the top ELSS funds of the future, as an investor, you need to pick the right and suitable ELSS funds to meet your financial goals.

Hence, a process that combines both quantitative and qualitative factors has a good chance of picking funds that can deliver decent market-beating returns. The quantitative factors will cover the fund’s performance across multiple periods and market cycles, as well as the fund’s ability to manage risk among other factors.

The qualitative factors will take into account the fund manager’s experience, the performance of the fund house across multiple schemes, as well as the quality of assets in the portfolio, to name a few. Thus, when analysing a fund across both quantitative and qualitative parameters, you will be able to pick a fund that has a promising future.

PersonalFN adopts such a process to shortlist the potentially best mutual funds for its subscribers.

If you are looking for the top ELSS funds, subscribe to PersonalFN’s Exclusive Report - 3 Tax-Saving Mutual Funds For 2018.

In this report, you will find the Top 3 ELSS that are geared to grow your investment multi-fold over long term while saving your taxes. These Top 3 ELSS are handpicked through our special 7-point Selection Matrix methodology, and are considered to be potentially the best tax-saving mutual funds in the Indian market.

 
DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014
 

About the Company including business activity 

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989. 

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services. 

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors. 

and condition on which its offer research report. For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;
  2. PersonalFN Insurance Services India Private Limited;
  3. Equitymaster Agora Research Private Limited;
  4. Common Sense Living Private Limited;
  5. Quantum Advisors Private Limited;
  6. Quantum Asset Management Company Private Limited;
  7. HelpYourNGO Private Limited;
  8. HelpYourNGO Foundation;
  9. Natural Streets for Performing Arts Foundation;
  10. Primary Real Estate Advisors Private Limited;
  11. Rahul Goel;
  12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

  1. Neither QIS, it’s Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices

Disclosure with regard to receipt of Compensation
 

  1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
  4. Neither QIS nor it’s Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months except from Axis Bank Limited under a service agreement.
  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
 

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.
  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222

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