As the financial year draws to a close, it is time for taxpayers to finalise their tax planning. Equity Linked Savings Schemes (ELSS) is one of the various tax planning investment products eligible for deductions under Section 80C. Apart from investment amount, dividend income and redemption proceeds are absolutely tax-free. These funds also have the lowest lock-in period of 3 years among all the mutual funds investment products available under Section 80C. Other than helping you save tax, ELSS funds also help in creating substantial wealth over the long term. These funds aim to generate long term capital appreciation by investing predominantly in equity or equity related investments. All these benefits make ELSS a highly attractive option for achieving your long-term financial goals such as retirement planning, children’s education and children’s wedding expenses.
Here is a list of the best ELSS funds for your long-term wealth creation:
- Axis Long Term Equity Fund: This fund is widely acknowledged as the best ELSS fund. It was launched on December 29, 2009 and has grown rapidly to become the largest ELSS fund in terms of asset size within this short period. The fund invests in quality stocks with strong prospects of generating wealth over the next 3–4 years. This strategy has paid off handsomely for its investors with the fund consistently outperforming most of its peer funds and benchmark by a wide margin. The fund has generated 23.62% (CAGR) and 20.30% (CAGR) return over the last 3 years and 5 years, respectively. It primarily invests in giant and large cap companies, which reduces the risk from market volatility.
- Franklin India Tax Shield Fund: Generating 24% (CAGR) return since its launch on April 10, 1999, this fund has outperformed the benchmark and most of its peers across most time periods. It has outperformed its benchmark in 12 of the last 15 years and has generated 22% (CAGR) and 16% (CAGR) return over the last 3 and 5 years respectively. The fund primarily invests in quality companies with attractive valuations and strong prospects of delivering sustainable growth. As more than 80% of its investments are in giant and large-cap companies, its better placed to reduce the losses during market correction.
- DSP BlackRock Tax Saver Fund: This fund is primarily a large-cap oriented ELSS fund with around 65% of its investments in giant and large cap companies. It follows a bottom-up approach in its investment style with a strong focus on quality stocks with strong growth prospects. The fund has generated around 13.92% return (CAGR) since its launch on January 18, 2007. Its returns over the last 3 years and 5 years have been 23.55% (CAGR) and 19.44% (CAGR), respectively.
- Reliance Tax-Saver Fund: This is an aggressive fund in the ELSS space. Unlike most of its peer funds, Reliance tax saver fund is primarily invested in mid-cap and small-cap cap companies. It follows a mix of value and growth style of investing by focusing of undervalued mid- and small-cap space. Currently, small and mid-cap stocks comprise 55% of its portfolio. This strategy has allowed it to outperform the category average by 5–10 percentage points over the last 3 and 5 year periods. The fund has generated 15.06% (CAGR) returns since its launch on September 21, 2005 and has delivered around 28% and 20% (CAGR) returns over the last 3 and 5 year periods.
- ICICI Prudential Long-Term Equity Fund: This fund invests in quality stocks with cheap valuation and good growth prospects across various market capitalisations. Its valuation-based investment style allows it to outperform peer funds by a wide margin during the initial phases of a bull market. The fund has generated around 21% (CAGR) returns since its launch on August 19, 1999. It has outperformed its benchmark in 13 of the last 15 years and has generated 20% and 17% (CAGR) returns over the last 3 and five year periods. Although around 45% of its portfolio is invested in mid– and small-cap companies, it value investment style will reduce the risk from volatility during market corrections.
Table 1: Portfolio break-down in terms of market capitalisation of Best ELSS Funds
|Fund Name||Portfolio Break-up (market capitalisation)|
|Giant Cap||Large Cap||Mid Cap||Small Cap|
|Axis Long Term Equity Fund||48.78%||21.16%||29.02%||1.03%|
|Franklin India Tax Shield Fund||62.46%||18.59%||17.62%||1.33%|
|DSP BlackRock Tax Saver Fund||49.89%||18.82%||25.23%||6.07%|
|Reliance Tax Saver Fund||26.90%||18.82%||39.28%||15.00%|
|ICICI Prudential Long Term Equity Fund||30.81%||23.23%||40.45%||5.51%|
To sum up, take into account your own risk appetite while choosing your ELSS funds. Opt for Reliance Tax Saver Fund and ICICI Prudential Long Term Equity Fund if you have a high-risk appetite. With PE multiple of BSE Midcap Index hovering around 27, their high exposure to mid-cap and small-cap stocks increases their vulnerability to market correction. Opt for Franklin India Axis Long Term Equity Fund and Franklin India Tax Shield Fund if you have moderate to low risk appetite.