Equity Linked Saving Schemes are tax savings fund where an individual can save up to 1.5lacs in a year under section 80C of Income Tax Act 1961.
These funds have a lock-in period of 3 years with the long-term capital gains over 1 lakh being taxed at the rate of 10%. The 3-year lock-in is for every individual investment made into ELSS funds. Therefore, every SIP investment will be locked-in for 3 years.
But, considering the other investment instruments in 80C, ELSS funds prove to be a better choice when it comes to the lock-in period and returns over the long term. However, one should calculate the amount to be invested in ELSS based on their asset allocation and how to fit they would be when compared to other investments under Sec 80C of Income Tax Act 1961

The 5 Best ELSS Funds to Invest are:

1. AXIS LONG-TERM EQUITY

Fund Manager: Jinesh Gopani
AUM: 18,752 crores

Performance:

Years 6 months 1 year 3 years 5 years
Returns(%) 3.13 7.41 10.73 22.87

The consistency in generating alpha while stabilizing over risk volatility has not only proven it to be as one of the best funds on ELSS segment but throughout the equity category.  This is visible in its asset size of 17000 crores. The fund has an exposure of 30% midcap currently.
The fund manager Jinesh Gopani has been associated with the fund since 2011 has been outperforming its peers over the long run. Though the fund suffered a setback during the last couple of years, its strong fund management team and a well-proven investment mandate strengthen it fundamentally.

2. ADITYA BIRLA SUNLIFE TAX RELIEF’96

Fund Manager: Ajay Garg
AUM: 7,020 crores

Performance:

Years 6 months 1 year 3 years 5 years
Returns(%) 0.55 6.52 13.11 22.34

 

A steady fund management of over a decade, a buy and hold strategy, consistency in performance over long period considering the 3-year lock-in are some of the reasons for the fund to be made as an investment choice. The fund is overweight on midcap with around 50% into mid-caps. The top 10 holdings comprise around 50% of the portfolio. The fund though seems to be taking an extra risk, the drawdown and volatility measures over an increasing period of time prove otherwise. Hence, the bear phase of the market did affect its performance but the fund soon bounced back. Considering its flexible investment nature, an asset size of 7000 crores shouldn’t prove to be an obstacle in generating alpha.

3. ICICI Prudential Long Term Equity

Fund Manager: George Heber Joseph, Priyanka Khandelwal
AUM: 5,773 crores

Performance:

Years 6 months 1 year 3 years 5 years
Returns(%) 1.90 3.97 11.15 19.29

 

The Fund has seen quite a few fund management changes in the recent past which might usually is a matter of concern but the recent fund manager George Heber Joseph who manages the fund with Priyanka Khandelwal helps in building our conviction on the fund. The fund manager typically follows more of a value strategy which seems right considering the investments in such funds are locked in for  3  years and the fund manager can safely play around with the value strategy. It even might be a reason for the fund not outperform in a short run but proves to be a right choice in the long run.

4. FRANKLIN INDIA TAXSHIELD

Fund Manager: Lakshmikanth Reddy, R Janakiraman
AUM: 3,914  crores

Performance:

Years 6 months 1 year 3 years 5 years
Returns(%) 2.98 4.85 9.05 18.96

 

The fund has recently gone a fundamental change with Anand Radhakrishnan handling over the management responsibilities to Lakshmikant Reddy. However, the fund sticks to the AMC mandate of not taking extra risks for generating superior alpha. Going forward, the fundamental changes may or may not be in line with the previous performance but for a category which locks in the investment money for 3 years, the fund mandate does provide a volatility cover which is also visible in the fund’s lower than benchmark allocation to the mid and small cap. Though this has also resulted in lower than peer returns in the short run but a good investment for investors looking out for generating returns while avoiding heavy losses during bear phases.

5. IDFC TAX ADVANTAGE

Fund Manager: Daylynn Gerard Paul Pinto
AUM: 1,741 crores

Performance:

Years 6 months 1 year 3 years 5 years
Returns(%) -4.55 1.52 12.37 19.94

 

The fund has been delivering returns in line with its top peers. The fund has almost an equal allocation in large and mid & small cap category with small-cap comprising to almost 20%. Though this has resulted in improving the fund’s performance, the risk profile and recent fund manager changes are a concern. Nevertheless, a strong AMC fund mandate, less churning in the portfolio and a scalable AMU size might prove to be a positive for the fund.

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