Equity Linked Saving Schemes (ELSS) are equity mutual funds that provide investors with tax benefits under Section 80C of the Income Tax Act, 1961. ELSS are diversified equity mutual funds that are required to allocate 80% of their assets towards equity and equity related instruments. Investments in these funds are tax exempt up to Rs. 1.5 lakhs. ELSS are subject to Long-Term Capital Gains (LTCG) Tax, therefore, returns above Rs. 1 lakh will be taxed at 10% in the redemption year.

ELSS come in two forms, Growth and Dividend. With the introduction of LTCG Tax, dividends will also be taxed at 10%. Taxation on dividends will be deducted by the fund house before distribution of dividends and are tax-free in the hands of the investor.

Advantages of ELSS

When compared to other tax-saving instruments, ELSS carry a relatively low lock-in period of just 3 years, therefore, these funds provide some of the best liquidity in this category.

ELSS have historically provided investors with better returns when compared to other tax-saving instruments like Public Provident Funds (PPF), National Savings Certificates (NSC), and Tax Saving Fixed Deposits (FD).

The 3-year mandatory lock-in period makes these investments a great gateway into equity investing as volatility in the market can cause investors to make impulsive decisions to sell and prevent them from seeing the long-term benefits of equity mutual funds.

Listed below are the best ELSS funds available on the market:

  1. Aditya Birla Sun Life Tax Relief 96

The Aditya Birla Sun Life Tax Relief 96 Fund was launched in March 1996 by the Aditya Birla Sun Life Mutual Fund House. The fund’s Assets Under Management (AUM) currently stands at Rs. 7,373 crores, which is the second largest in the ELSS category. This demonstrates investors trust in the fund and its high performance and stability. The Aditya Birla Sun Life Tax Relief 96 performs well during bullish market cycles but underperforms during bearish market cycles. The fund carries an Alpha of 0.37 which is substantially lower than the category average Alpha of -1.45 and a Beta of 0.92 which is marginally lower than the category average Beta of 0.98, demonstrating the fund’s capacity to produce higher-than-expected-returns while mitigating risk. The Aditya Birla Sun Life Tax Relief 96 is managed by Mr. Ajay Garg since October 2006, who has worked with Aditya Birla Sun Life Fund House since 1999. The fund diversifies its investments across 48 stocks in 12 sectors. The trailing returns of the fund against its category and benchmark have been provided in the table below.

Trailing Returns (%) 3-M 6-M 1-Y 3-Y 5-Y
Fund 0.49 -8.09 -5.25 15.76 19.19
NIFTY 200 TRI 1.51 -6.87 -0.65 17 14.68
Category -0.02 -8.49 -7.12 14.61 15.83
  1. Axis Long Term Equity Fund

The Axis Long Term Equity Fund was launched in December 2009 by the Axis Mutual Fund House. The fund has the highest AUM by a large margin of any fund in this category, which currently stands at Rs. 17,090 crores (as on 13/2/2019). This large AUM demonstrates the trust investors have in this fund and its high performance and stability. The fund has almost consistently outperformed its benchmark and category since its inceptions, with the exception of 2016 where it was outperformed by both its category and benchmark. The fund outperforms its category in both bullish and bearish markets. The Axis Long Term Equity Fund is managed by Mr. Jinesh Gopani who has been managing this fund since April 2011. Mr. Gopani is the Head of Equity for Axis Mutual Fund House. The fund diversifies its investments through 33 stocks across 12 sectors of the Indian economy, its top holdings are in the Finance, Technology, Automobile and Chemicals sectors. The trailing returns of the Axis Long Term Equity Fund against its benchmark and category have been provided in the table below:

Trailing Returns (%) 3-M 6-M 1-Y 3-Y 5-Y
Fund 1.47 -8.4 1.56 14.53 19.48
NIFTY 200 TRI 1.51 -6.87 -0.65 17 14.68
Category -0.02 -8.49 -7.12 14.61 15.83
  1. ICICI Prudential Long Term Equity Fund

The ICICI Prudential Long Term Equity Fund was launched in August 1999 by the ICICI Prudential Mutual Fund House. The fund has an AUM of Rs. 5,547 crores (13/2/2019) which is one of the highest in its category. The size of its AUM demonstrates the investors’ confidence in this fund and its high performance and stability. The ICICI Prudential Long Term Equity Fund has consistently outperformed its benchmark and category since 2009 in both bullish and bearish market cycles. The fund saw its best performance between March 2009 and March 2010. The fund has seen a recent change in management with the new Fund Managers Mr. Sankaran Naren and Mr. Harish Bihani joining in 2018 who carry a collective experience of 36 years in the field. The fund diversifies its investment through 36 stocks in 13 sectors of the Indian economy, its top holdings are in the Finance, Energy, Healthcare and FMCG sectors. The trailing returns of the ICICI Prudential Long Term Equity Fund against its category and benchmark have been provided in the table below:

Trailing Returns (%) 3-M 6-M 1-Y 3-Y 5-Y
Fund -2.19 -7.79 -2.79 12.87 15.23
NIFTY 500 TRI 0.91 -7.81 -3.3 16.69 14.94
Category -0.02 -8.49 -7.12 14.61 15.83
  1. L&T Tax Advantage Fund

The L&T Tax Advantage Fund was launched in February 2006 by the L&T Mutual Fund House. The has an AUM of Rs. 3,120 crore (13/2/2019) which is among the top in its category. This high AUM demonstrates the confidence investors have in the fund and its high performance and stability. The fund has almost consistently outperformed its benchmark and category since 2008, with the exception of two years, 2012 and 2018. The fund came under the management of L&T in 2012 and during the transition period till 2015 it has outperformed the benchmark and was slightly below the benchmark. The fund saw its best performance between March 2009 and March 2010. The fund is currently managed by Mr. S.N. Lahiri who has been managing this fund since L&T took over management in 2012. Mr. Lahiri manages a number of other funds for L&T Mutual Funds which have been performing well. The fund currently diversifies its investments through 59 stocks across 14 sectors of the Indian economy. The fund invests heavily in the Finance, Technology, Construction, and Service sectors of the Indian economy. The trailing returns of the L&T Tax Advantage Fund against its benchmark and category have been provided in the table below.

Trailing Returns (%) 3-M 6-M 1-Y 3-Y 5-Y
Fund -6.04 -12.87 -12.73 15.36 15.83
NIFTY 200 TRI 1.51 -6.87 -0.65 17 14.68
Category -0.02 -8.49 -7.12 14.61 15.83
  1. Franklin India Taxshield Fund

The Franklin India Taxshield Fund was launched in April 1999 by the Franklin Templeton Mutual Fund House. The AUM of the fund currently stands at Rs. 3,666 crores (13/2/2019) which are amongst the highest in its category. This high AUM demonstrates the confidence investors have in the fund and its high performance and stability. This fund has consistently outperformed its benchmark and category since 2013, with the exception of 2017 where it was outperformed by both its benchmark and category. The fund is managed by Mr. Lakshmikanth Reddy and Mr. Janakiraman Rengaraju since May 2016. Mr. Rengaraju has rich experience in fund management and manages two successful funds for the Franklin Templeton Mutual Fund House. The trailing returns of the Franklin India Taxshield Fund against its benchmark and category have been provided below.

Trailing Returns (%) 3-M 6-M 1-Y 3-Y 5-Y
Fund 0.31 -6.98 -3.47 12.5 16.28
NIFTY 500 TRI 0.91 -7.81 -3.3 16.69 14.94
Category -0.02 -8.49 -7.12 14.61 15.83

 

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