Planning your finances properly can go a long way in securing your future and tax planning is an integral part of such financial planning. Proper tax planning can not only reduce the tax liability but also end up saving towards various financial goals that you have set for yourself. Here are the top seven ELSS funds to invest in 2020.
In the Indian context, Section 80C of the Income Tax Act allows you to claim deductions from your taxable income by investing in certain financial instruments. Investments up to Rs 1.5 lakh are deductible in avenues specified under section 80C which includes The Public Provident Fund(PPF), Equity-Linked Savings Schemes(ELSS), Sukanya Samriddhi Yojana, tax-saving bank fixed deposits(FDs) and others.
One of the most popular Section 80C investments is the tax saving mutual fund or Equity Linked Savings Scheme(ELSS). An ELSS is a diversified equity mutual fund with the majority of the collections invested in equities. As with any equity fund, returns from an ELSS fund reflect returns from the equity markets.
Among the investment options mentioned in Section 80C, ELSS enjoys the shortest lock-in period of 3 years. Investment in the best ELSS mutual funds has the potential to deliver significantly higher returns when compared to traditional tax-saving instruments. It also offers the option of investing the amount systematically through the Systematic Investment Plan (SIP).
The income that you earn under this scheme at the end of the three-year tenure will be considered as Long Term Capital Gain (LTCG) and will be taxed according to the prevalent tax rules.
How to invest in ELSS Funds?
Investments in the best ELSS mutual funds can be done through two ways:
Online Investment: You can invest in ELSS online by simply going into online platforms such as Paisabazaar.com, FundsIndia.com or directly through the websites of the Asset Management Companies (AMCs), offering the fund.
Offline Investment: You can go to any branch of the fund house and fill up the necessary form. You can also invest through a broker.
Some of the best ELSS mutual funds of 2020:
Axis Long Term Equity Fund
It is an open-ended equity scheme aiming to generate long term capital appreciation. It has a statutory lock-in of 3 years and tax exemption on investment. The fund has the highest value of total assets under management, amongst its peers and has delivered whopping returns of 20.25% in the 7 – year time frame.
Three-year returns on investment are estimated at 18.46% and for five years its estimated returns are 20.25%. The portfolio is balanced between its mid and large-cap allocations and offers sufficient diversification to the investor. A minimum amount of ₹500 needs to be invested in this fund both for a lump sum and SIP mode of investment.
Aditya Birla Sun Life Tax Relief 96
This fund allocates its assets to equity securities for fostering capital appreciation in the long run. The portfolio is given substantial stability against market volatility by allocating roughly 44% of assets to large-cap stocks. Three-year return on investment is estimated at 13.45% and for five years its estimated return is at 10.03%. Stocks of companies with a strong competitive advantage and stable management teams are bought to ensure sustainable growth. The fund has outperformed its benchmark and category peers on a regular basis.
Mirae Asset Tax Saver Fund
This fund invests in primarily large-cap companies that are flourishing. Although being a relatively new fund, it has outperformed many ELSS funds since its inception in 2015. It has given a stellar 3-year return of around 19.02%, against the benchmark of 13%. This is managed by Mr. Neelesh Surana, who has been in this industry for a long while.
Motilal Oswal Long Term Equity Fund
It invests in a combination of large-cap, mid-cap, and small-cap businesses and follows the buy and hold strategy for a long term return. This is a good choice to make your portfolio diverse.
The three-year returns are at 14.87%, better than the category average. It is managed by Mr. Aditya Khemaani, who has 15 years of experience in funds management and research across various fund houses and financial companies.
DSP Tax Saver Fund
Having an AUM of more than Rs. 6000 Crores, this fund has delivered exceptional historical returns. It primarily invests its corpus in high growth companies across various sectors. Three-year returns are at a good 13.5% and show steady growth. It has allocated around 77% of its funds to large-cap stocks, so it has the ability to bear the market grunt.
Tata India Tax Savings Fund
This fund with AUM of Rs. 2000 Crores has shown good performance over the last few years. Three-year absolute returns are good, at around 21%. It has a slightly higher expense ratio of 3.20, which is higher than the category average. As with all ELSS funds, it has a compulsory lock-in period of 3 years.
Canara Robeco Equity Tax Saver Growth Fund
It has one of the highest returns in the ELSS funds, with around 33% absolute returns over the last three years, before the COVID-19 crisis made the market take a nosedive. This fund has a decent expense ratio of 2.34%.
Investing in the best ELSS mutual funds is hence a great way to grow your money and get tax rebates as well. However, as these are all equity-linked schemes, there are high risks associated with it. The lock-in period is only 3 years but most equity-based funds give the best returns when invested over longer periods.