We know that ELSS funds are the best tax saving option. It has the potential to give best return. Also, It has the shortest lock in period. Hence many of us want to invest into these funds. Naturally we also want the best ELSS fund among the whole ELSS category. Let me tell you that there are hundreds of ELSS funds. Choosing the best from these is not a very easy task. You have to use certain yardstick to get the top tax saving fund.
I have personal interest in the Equity Linked Saving schemes as I also invest into these funds every year. Indeed, It is my preferred tax saving investment. I like ELSS as it has the potential to give a far better return. However, Investment in equity funds is risky and I assume that you understand the risk of ELSS funds.
In the beginning every new year, I assess scores of mutual funds to select the best ELSS fund. You may have seen my list of best ELSS scheme of 2016. I have also done a reality check of the chosen top funds.
As you know that I have fixed some parameters and tools to screen the mutual funds. After going through these parameters, I reach to the top ELSS mutual funds.
This year also, I have also selected the best ELSS funds. You can directly jump to the list of top 3 ELSS funds. However, I would recommend you to read whole post as I will take you along the whole process of the best ELSS selection. It would assure you about the list. Since this website does not compile data of mutual funds thus I have used the data of Morningstar and Valueresearch.
- 1 Qualities of Best ELSS Fund
- 2 How I Selected the Top Tax Saving Mutual Funds
- 3 Top 5 Best ELSS Tax Saving Funds
- 4 Portfolio Analysis
- 5 Top 3 Best ELSS Tax Saving Mutual Funds
- 6 Franklin India Taxshield Fund
- 7 DSP Blackrock Taxsaver
- 8 Axis Long Term Equity Fund
Qualities of Best ELSS Fund
What is a best investment scheme? A scheme which fulfills our requirements. That is why I have fixed some parameters for my best ELSS fund. For me, a best tax saving mutual fund should have following qualities. I hope that my requirement would match you. I have selected the best ELSS on the basis of these requirements.
- The best ELSS should definitely give us more profit than any other tax saving investment.
- There should not be a shock, I dislike losing money. The fund should not be very risky. We understand that equity mutual funds carry certain risk.
- The ELSS should not increase my heart beat. The ups and down should not be sharp.
These objectives were the guiding principle of the fund selection process.
How I Selected the Top Tax Saving Mutual Funds
I wish, if I could foresee the performance of ELSS. But it is not possible. We can neither predict the market movement nor the performance of equity mutual funds. Therefore, we have to rely on the present and past performance of the tax saving mutual funds. On the basis of past performance we try to find out the best ELSS fund. Hence, let us assess the mutual funds. My best ELSS fund should have following qualities.
- It should beat the average return of the share market and ELSS category. This parameter ensures that a ELSS is a consistent performer.
- The ELSS should give good return in a longer period.
- It should not behave erratically. The steady return is preferred.
- It should invest in good companies. the portfolio should be inclined towards growth stock.
- The stock selection of ELSS should be based on proper research and fund should follow the value investing.
Assessed only Regular Growth ELSS
An ELSS fund has four version. The Regular growth, Regular Dividend, Direct Growth and Direct Dividend. Among these four, I have chosen Regular growth for assessment, as this version is older and gives you the clearer picture. However, If possible you must invest in ‘Direct’ version of an ELSS. Direct fund gives you a higher return.
Top 10 ELSS funds
As performance is key for a tax saving mutual fund, I have started my fund selection with the performance. I can find out the performance of funds during last 1, 3, 5 and 10 years. But, I have overlooked the one year performance as this can be a blip. Thus, I have gone for those funds which has given above category average return during last 3 and 5 years.
|Name||3 Year Annualised %||5 Year Annualised %|
|Reliance Tax Saver (ELSS) Fund||26||22.06|
|DSP BlackRock Tax Saver Fund||22.54||20.87|
|Axis Long Term Equity||22.23||21.7|
|Birla Sun Life Tax Relief 96||21.55||19.54|
|L&T TaxSaver Fund||21.38||17.53|
|Invesco India Tax Plan||20.98||18.84|
|Birla Sun Life Tax Plan||20.61||18.99|
|Franklin India Taxshield Fund||20.55||18.21|
|ICICI Prudential Long Term Equity Fund (Tax Saving)||18.69||18.65|
Once I had chosen the top 9 tax saver funds, It was time to apply the filter of RISK. I have to weed out those ELSS funds which have shown weakness during market downturn. I need those funds which weathered the market fall. A best ELSS fund should not fall much during market drop. Therefore, it is important to check the performance of ELSS funds during market fall.
To judge the return of a fund during downturn we can use the Sortino ratio. This ratio tells us the fund’s strength during market fall. Greater the sortino ratio, better would be a fund.
Top 5 Best ELSS Tax Saving Funds
|Name||3 Year Annualised %||Year Annualised %||Sortino Ratio|
|Reliance Tax Saver (ELSS) Fund||26||22.06||1.71|
|DSP BlackRock Tax Saver Fund||22.54||20.87||1.70|
|Axis Long Term Equity||22.23||21.7||1.72|
|Birla Sun Life Tax Relief 96||21.55||19.54||1.50|
|L&T TaxSaver Fund||21.38||17.53||1.44|
|Invesco India Tax Plan||20.98||18.84||1.48|
|Birla Sun Life Tax Plan||20.61||18.99||1.47|
|Franklin India Taxshield Fund||20.55||18.21||1.91|
|ICICI Prudential Long Term Equity Fund (Tax Saving)||18.69||18.65||1.42|
In the third step I focussed on future indications. The investments of a fund gives you an indication of the future performance. For a consistent and good performance, the fund should invest into large and growth oriented companies. We can check this investment strategy of a fund by going through the investment style map.
Among these 5, I have selected those funds which has the highest concentration of big companies. Let me tell you that big companies fall less during market decline.
|Name||3 Year Annualised %||5 Year Annualised %||Sortino Ratio||Big Companies in portfolio (%)|
|Reliance Tax Saver (ELSS) Fund||26||22.06||1.71||26.90|
|DSP BlackRock Tax Saver Fund||22.54||20.87||1.70||49.63|
|Axis Long Term Equity||22.23||21.7||1.72||48.78|
|Birla Sun Life Tax Relief 96||21.55||19.54||1.50||31.86|
|Franklin India Taxshield Fund||20.55||18.21||1.91||62.46|
Top 3 Best ELSS Tax Saving Mutual Funds
Now, I have found the top 3 best ELSS tax saving mutual funds. These funds have given above average return during last 3 and 5 years. These funds carry lesser risk among top 10 ELSS fund. The performance of these 3 funds would be more consistent as they invest more money into the big companies. I am not ranking these top 3 funds. All of them are best ELSS and you can select any of these.
- Franklin India Taxshield Fund
- DSP BlackRock Tax Saver Fund
- Axis Long Term Equity
Franklin India Taxshield Fund
The Franklin India Taxshield has shown its strength during the market fall. You can see that in the 2008 and 2011 when there was a sharp fall, this fund has performed much better than the category average. However, It is also true that this fund could not match the category average in the years of market rally. That is why this fund is preferable to those who want to reduce risk at the cost of some return.
|Franklin Taxshield Return||Category Return||+/- to ELSS category|
- Franklin India Taxshield is an old ELSS mutual fund. It started in 1999.
- The whole franklin fund management company has very good process of stock picking. Globally, Franklin Templeton is known for its stock selection.
- The Franklin India Taxshield adopts the value investment philosophy. The fund waits for attractive price before investing in a share.
- The fund focuses on big companies which have potential to grow the business.
- The fund is backed by a strong research team.
- This ELSS has close similarity with the Franklin India Prima Plus. In fact, if you want to invest in Prima plus, you can go for taxshield as it also gives tax benefit.
- In the May 2016, Its long time fund manager Anand Radhakrishnan stopped managing this fund. However, his associate Janakiraman continues with this fund. The departure of Radhakirshnan is cosidered as a negative. However, we should trust the investment mechanism of the Franklin Group.
DSP Blackrock Taxsaver
- The fund is 10 years old and it has given 14% return since inception.
- The DSP BlackRock Taxsaver fund invests primarily in large caps. However, 30-35% of corpus is used to invest in midcap shares.
- It gives too much emphasis on growth shares. It searches the company which has great potential to grow.
- Because of the focus on growth shares, it leads the market trend. If the market is falling the fund falls more than the category average. Similarly if the market rises the DSPBR taxsaver give far better return than category average. Hence, this fund is better for those who are ready to take extra risk for higher return.
|DSP BlackrRock Taxsaver Return||ELSS Category Return||+/- to category return|
The veteran fund manager of this fund Mr Apporva Shah has quit the scheme. Now Rohit Singhania is managing the scheme. Because of the new fund manager, we need to be careful while investing in this mutual fund. We don’t know the capabilities of new fund manager.
Axis Long Term Equity Fund
Axis Long Term Equity Fund has shown the extraordinary performance till last year. It has maintained a comfortable lead among all the ELSS funds. However, year 2016 has been a bad year for the fund. It has given far less return than the category average. We should also note that the axis long term equity fund now has a heavy asset under mamanegment. With a big corpus, fund manager struggle to find suitable shares.
The following table shows that except year 2016, the Axis long term fund has beaten the category average with a big margin.
- The axis Long term equity fund works on blend of growth and value strategy. It tries to find the good stock cheap. On the other hand It also invests heavily on growth shares which may not be cheap.
- The fund manager Jinesh Gopani has put this fund on top. He is doing splendid job. The good thing is that he is consistent with the Axis long term equity fund since 2011.
- The Axis long term equity fund is playing on domestic consumption story.
I have prepared this list of top best ELSS tax saver fund in the Second week of December 2016. I will again update this post after the June. So the new reader would get the fresh data. Thanks for Reading.