Top 5 Tax Saving Funds to Invest in 2018
Oh, it's March again! How much tax did you save this year? Have you proudly asked this question to any of your friends or colleagues? If no, then we guess you are still unaware of the magic of ELSS.
To be precise, ELSS stands for Equity Linked Savings Scheme, which is also referred as a tax saving mutual fund. It qualifies for tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act of India, 1961. Being a perfect instrument for wealth creation too, it has been successful in delivering 15-18% returns in the long term.
To understand the concept in a better way, Read Must Know: 7 Important Questions About ELSS Funds As mutual fund experts, we keep suggesting that it’s better to start your tax planning exercise at the beginning of the new financial year. Further, such schemes provide multiple benefits, including:
As now you know what benefits you can expect, let’s put the focus on our recommendations. So, here’s the much-awaited list:
- Reliance Tax Saver Fund
- Aditya Birla Sun Life Tax Relief 96’ Fund
- DSP BlackRock Tax Saver Fund
- Axis Long Term Equity Fund
- L&T Tax Advantage Fund
To recommend the list of these top performers, our experts have taken several parameters into consideration. These include:
- Filtration of Funds
On deeply examining all the 40 ELSS funds, the ones that we have picked have the AUM of Rs 200-250 crore, and above. And, they have at least spent 5 years in the market. The fund size is an important factor which depicts the handling capacity of the fund manager. Moreover, it offers a chance to the fund manager to invest in good holdings.
- Performance and Risk Analysis
Historical performance is yet another important factor to calculate funds’ past track record. In this part, funds who have consistently beaten their benchmark and category are selected. To calculate their performance, we’ve used rolling returns and compared funds on the basis of their upside and downside ratio. Here, rolling returns describes returns in different periods, whereas upside and downside ratio represents the performance in positive and negative market cycle.
If the upside ratio is greater than 100, it depicts that the fund has outperformed its benchmark. Similarly, if the downside ratio is less than 100, it shows that the fund has gone less negative as compared to its benchmark. These factors depict the risk management capabilities of the fund.
- Investment Strategy and Portfolio Analysis
The future returns of any fund greatly depend on its investment strategy and future planning. Thus, it becomes crucial to check parameters such as stock research techniques, funds’ allocation, diversification, CRISIL rating, etc.
Justification of Our Choices Based on the Parameters:
- Considering the filtration case, all the listed funds have markets existence greater than five years and AUM or investment size greater than Rs 2000 crore approximately. It should be noted that Axis Long Term Equity Fund and Reliance Tax Saver Fund are two of the funds which have the maximum assets under their watch.
- Coming to the second parameter, it should be seen that the rolling returns achievement ratio in the past five years is greater than 75% in all the listed cases which means that all these funds have beaten their benchmark at least 75% times. Let’s examine the upside and downside ratios of the funds through the table below:
- It’s time we talk about the selected funds’ portfolio. Till March 31, 2018, almost every fund has equity allocation greater than 95%. However, the market capitalization is different in all the cases. As Reliance Tax Saver Fund and Aditya Birla Sun Life Tax Relief 96 Fund are more inclined towards small, mid, and micro-companies. This shows that the funds are a bit aggressive which make them ideal for investors who can stomach high risk. Here, the L&T Tax Advantage Fund is the one with diversified investment. And, finally, the investment of Axis Long Term Equity Fund and DSP BlackRock Tax Saver Fund is more in giant and large-cap companies, which make them suitable for risk-averse investors.
Talking about specific sector allocation, almost all funds have the highest allocation in banking and finance sector, except for Aditya Birla Sun Life Tax Relief 96 Fund which is the only one with highest allocation in pharma sector and this can be an excellent value-based investment strategy.
Last But Not Least
Henceforth, it can be concluded that among these recommendations, Reliance Tax Saver Fund and Aditya Birla Sun Life Tax Relief 96 Fund are both aggressive nature funds who have the potential to deliver high returns taking high risks. DSP BlackRock Tax Saver Fund is a consistent performer who provided stable returns, whereas Axis Long Term Equity Fund is more of a defensive fund whose risk-to-reward ratio is quite good. Lastly, there is L&T Tax Advantage Fund which is an all-time performing fund having the potential to deliver moderate to high returns while being moderately risky.
We hope now you can pick the best one for yourself considering your objective. In case of any query, connect with our experts at MySIPonline. We will be happy to serve you!
- This Independence Day, Let's Pledge for Freedom from Financial Worries2096 min read Aug 14, 2018
- Are Balanced Funds Better Than Balanced Advantage Funds?2984 min read Aug 02, 2018
- 7 Points to Ponder While Investing in Small Cap Funds7973 min read Jul 19, 2018