Which Are The Best ELSSs (Tax Saving Funds) For 2019?

Adios 2018

Hola 2019!

As you bring in the New Year, investments and tax saving may be on your mind. You could receive a mail from the human resources (HR) or accounts department of the company you work for, to submit proof of tax-saving investments. We are officially in the tax-saving season!

Tax Saving Funds

If you are a risk taker, Equity Linked Savings Scheme or ELSS (also known as a Tax Saving Fund) is a worthy tax-saving avenue. The returns clocked by some ELSS over the long-term (3 years and more) indicate that they’re not only advisable for tax planning under Section 80C, but even to address your long-term financial goals. So, effectively by investing in ELSS, you could hit two birds with one stone.

[Read: 4 Tax-Saving Investment Options for Risk Takers]

Here are the key benefits of ELSS:

ELSS Tax Saving Funds for 2019

ELSSs as categorised by the capital market regulator, are equity mutual funds holding a diversified portfolio and usually are market-cap and sector agnostic. To put it simply, normally they aren’t skewed to a particular market capitalisation segment or a sector. In terms of investment style, ELSS may be of any genre. The fund may follow a growth or value style or even a combination of both.

A distinguishing feature about ELSS is that they are subject to a compulsory lock-in period of three years. Hence, this calls for more care and caution when you add ELSS or tax saving funds to your portfolio. Remember, if it’s not the best ELSS or one of the best ELSS, it could hinder the performance of your investment portfolio.

When you select ELSS, give importance to the ones that have a consistent performance track record and follow robust investment processes & systems at the fund house. Looking for ELSS with a consistent performance track record, besides qualitative aspects like fund house pedigree, and investment process, quality of the fund management team among others is imperative.

ELSS Funds in 2019
(Image source: pixabay.com)

It is not necessary that the best ELSS of the past years will the best performers in the future. The performance of ELSS funds can vary wildly over the years. 

Table 1: Top Performing ELSS Mutual Funds as of December 2015

Scheme Name 31-Dec-12 To 31-Dec-15 (%) Rank 2012-15 Rank 2015-18
Axis Long Term Equity Fund(G) 27.36 1 11
Aditya Birla SL Tax Relief '96 22.56 2 9
Reliance Tax Saver (ELSS) Fund(G) 22.50 3 37
Invesco India Tax Plan(G) 21.60 4 15
Aditya Birla SL Tax Plan(G) 21.56 5 14
BNP Paribas Long Term Equity Fund(G) 21.08 6 38
IDFC Tax Advt(ELSS) Fund (G) 20.47 7 13
ICICI Pru LT Equity Fund (Tax Saving)(G) 20.12 8 27
Franklin India Taxshield(G) 20.12 9 28
DSP Tax Saver Fund (G) 19.24 10 12
Edelweiss Long Term Equity Fund (Tax Savings) (G) 18.64 11 34
Principal Tax Savings Fund 18.55 12 5
SBI Magnum TaxGain'93 (G) 18.11 13 33
Quant Tax Plan(G) 17.71 14 2
DHFL Pramerica Tax Plan(G) 17.32 15 20
NIFTY 50 - TRI 11.68 - -
NIFTY 500 - TRI 13.53 - -
S&P BSE 200 - TRI 13.32 - -
S&P BSE SENSEX - TRI 12.03 - -
Data as on December 31, 2015
Returns are compounded annualised
(Source ACE MF)

*Please note, this table only represents the best performing ELSSs based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

 The table above reflects that the ranking of some of the top ELSSs of December 2015 has slipped. Some names viz. Reliance Tax Saver (ELSS) Fund, SBI Magnum TaxGain'93,  Edelweiss Long Term Equity Fund (Tax Savings), and BNP Paribas Long Term Equity Fund(G) which appeared in the top 15 performing ELSS list then aren’t topping the charts today.

If you still hold some of these funds, I recommend you seek PersonalFN’s help and review your portfolio.

Table 2: Top Performing ELSS Mutual Funds as of December 2018

Scheme Name 31-Dec-15 To 31-Dec-18 (%) Rank 2012-15 Rank 2015-18
Mirae Asset Tax Saver Fund(G) 18.37 NA 1
Quant Tax Plan(G) 14.02 14 2
HDFC Long Term Adv Fund(G) 13.93 21 3
Motilal Oswal Long Term Equity Fund(G) 13.89 NA 4
Principal Tax Savings Fund(G) 12.78 12 5
JM Tax Gain Fund(G) 12.69 19 6
Taurus Tax Shield Fund (G) 12.49 32 7
L&T Tax Advt Fund (G) 12.23 18 8
Aditya Birla SL Tax Relief '96(G) 12.20 2 9
LIC MF Tax Plan(G) 11.91 23 10
Axis Long Term Equity Fund(G) 11.89 1 11
DSP Tax Saver Fund(G) 11.88 10 12
IDFC Tax Advt(ELSS) Fund(G) 11.73 7 13
Aditya Birla SL Tax Plan(G) 11.69 5 14
Invesco India Tax Plan(G) 11.49 4 15
NIFTY 50 – TRI 12.47 - -
NIFTY 500 – TRI 12.29 - -
S&P BSE 200 – TRI 12.75 - -
S&P BSE SENSEX – TRI 12.84 - -
Data as on December 31, 2018
Returns are compounded annualised
(Source ACE MF)
*Please note, this table only represents the best performing ELSSs  based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for an indicative purpose. Speak to your investment advisor for further assistance before investing.

Currently, some of the ELSSs or tax-saving funds topping the charts as of December 2018 are Axis Long Term Equity Fund, Aditya Birla SL Tax Relief '96, L&T Tax Advantage Fund, IDFC Tax Advantage (ELSS) Fund, and Principal Tax Savings Fund. Moreover, certain schemes Mirae Asset Tax Saver Fund and Motilal Oswal Long Term Equity Fund didn’t even exist then. Just eight funds out the total 42 ELSSs make it to the list of the top 15 performing ones even today. These schemes have delivered superior and consistent returns and adequately compensated investors for the risk taken.

Hence, do not get lured by the past returns; because it does not guarantee that the fund will continue to fare in the same manner in the future.

To assess the future performance of an ELSS (or any mutual fund scheme for that matter) always pay attention to both quantitative as well as qualitative aspects.

How to pick the best ELSS in 2019 ?
(Image source: pixabay.com)

So, here’s how to pick the best ELSS in 2019…

→  Quantitative parameters

  • Test on returns and do risk analysis – This is to analyse if the ELSS has generated returns consistently (on a rolling returns basis) across various time frames – 1-Year, 3-Year, 5-Year and since inception. Plus, know if the ELSS has managed the risk well by gauging risk-reward ratios like Sharpe Ratio, Sortino Ratio, and Standard Deviation.

  • Assess performance across market cycles – Compare the performance of ELSS across bull and bear market phases to ascertain how best the scheme is been able to get the most out of the bull phase and also how well it has been able to arrest the downside during the bear phase.

→  Qualitative Parameters:

  • Judge the portfolio characteristics – The portfolio quality of an ELSS points could signal how the fund is likely to perform in the future. Ideally, an ELSS should not hold a very concentrated portfolio, since it heightens the risk involved. The portfolio of a fund should be well-diversified and the exposure to the top-10 stocks should be ideally under 50% while concentration to one particular sector should not exceed 30-35%.

    Further, the ELSS should not be churning the portfolio very often. Portfolio churning is indicated by the portfolio turnover, which ideally should not exceed 100%. Penalise a fund with a high portfolio turnover ratio.

  • Test on quality of fund management – Here, you need to assess if the fund manager is overloaded with a large number of schemes. Hence, check the funds-to-fund manager ratio. Ideally, a single fund manager should not manage more than 5 funds. If he/she is managing more schemes, the overburden could weigh on the performance of the ELSS.

    Further, the fund manager should have relevant and sufficient experience in investment research and fund management, ideally over a decade. But also note that mere experience isn't enough. Some ELSSs managed by fund managers with 15-20 years of experience have not necessarily done well.

    Similarly, check the efficiency of the fund house in managing the garnered. You can do this by evaluating the proportion of AUM that’s actually performing, whether only a few schemes are doing well or most of them. A fund house that performs well across the board is an indication of sound investment processes and risk management techniques in place.

[Read: Why Qualitative Aspects Are So Important To Pick Mutual Funds]

Selecting the best ELSS requires some hard-work and data crunching on your part, as an investor. And rely blindly on star-rated ELSS may not be in your best interest. Star ratings are conferred based on past returns and can never foretell how the fund will perform in the future. Moreover, with the change in the performance cycle, the ratings can change dynamically. A 5-star rated fund today may lose some of its stars tomorrow.

[Read: Why You Should Stop Looking At Mutual Fund Star Ratings Now]

In addition, make sure you do not make these mistakes:

7 Mistakes To Avoid When Investing In Tax Saving Mutual Funds

Selecting the best ELSS is, of course, a daunting for an average investor, and hence, here’s something for you.

 Combo Offer – Tax Saving, Undiscovered Fund & SIP 2019

If you wish to own THE BEST ELSS for 2019 in your portfolio, PersonalFN’s report 3 Tax Saving Mutual Funds for 2019is a perfect choice for you. The top 3 ELSS here are selected based on PersonalFN’s special SMART Score Matrix.

S M A R T Score
Systems & Processes Market Cycle Performance Asset Management Style Risk-Reward Ratios Performance Track Record Total Score

Tax Saving Fund #1:

Having a performance track record of over two decades, this fund has generated higher returns across all important time-frames and consistently ranks among the top quartile of funds in the ELSS category.

Positioned as a multi-cap fund, it holds strong orientation towards large-cap stocks, with a fair chunk of stocks in mid and smaller market capitalizations holding higher risk.

Although this fund is a contender of higher volatility, it compensates its investors with superior risk-adjusted returns and the ability to negotiate the market downsides well.

The fund is a worthy buy for investors having higher risk appetite, and a desire to invest in one of the consistently performing ELSS with a long-term view.

Tax Saving Fund #2:

Having a penchant to hold large-cap stocks in its portfolio, this fund has registered a superior track record across market cycles.

Strong investment processes, astute stock picking, and sound risk management processes make it a prominent contender when it comes to selecting potentially the best tax saving funds.

The fund's preference for holding a blend of cyclical and defensives in its portfolio, with an eye on valuations, reflect the cautious approach the fund follows.

Overall, it is well positioned to adequately compensate investors who have moderate to high-risk appetite and have a desire to invest in time-tested ELSS fund with a long-term view.,

Tax Saving Fund #3:

By consistently topping the return charts, this ELSS has made an impact over the past couple of years.

Apart from helping investors avail tax deductions, the fund has generated one of the highest risk-adjusted returns in the category.

It is well positioned to reward long-term investors who can hold on to their investment for a longer duration.

The active portfolio strategies followed by this ELSS has resulted in its superior performance and made it an appealing proposition for investors having a desire to invest in a well-performing ELSS with a long-term view.

If you are looking to invest for higher return and save taxes this year, these top 3 ELSS funds might be the ones you are looking for. These top 3 ELSS researched by PersonalFN are considered to be potentially the best tax-saving mutual funds in the Indian market. Click here to know their names and get a 3-in-1 package now!

Finally, when you invest in ELSS, prefer the Direct Plan over the Regular Plan. The lower expense ratio of a Direct Plan can help you yield better returns over the long run.

To invest in Direct Plans of an ELSS, you can either approach the mutual fund house directly or office of the registrar (CAMS or Karvy), transact via MFU (Mutual Fund Utilities) portal, vide a robo-advisory platform offering Direct Plan, or through SEBI registered investment adviser.

The minimum application amount for most ELSS is as little as Rs 500, with no upper limit. You can invest either lump sum or vide SIPs (Systematic Investment Plan) – the choice is yours. But remember, every SIP instalment will be subject to a lock-in period of three years. However, to mitigate the volatility of the equity markets, SIPs are a worthy route because it provides the benefit of rupee-cost averaging while you endeavour to compound wealth.

ELSSs or tax-saving funds are ideal for tax-saving if you have the stomach for high risk and a long-term investment time horizon of at least three years.

Happy Investing and Happy Tax Planning!

Author: Rounaq Neroy