While ELSS or equity linked savings scheme so far received huge inflows year-on-year, it is highly likely that this time around due to the new tax regime announced in Budget 2020 that provides an option to lower tax outgo at the cost of giving off earlier allowed deduction on some of the investment and expenses shall not see that much of interest in these investment avenues.
As it is what favoured these products was their ability to generate a higher return over a longer term due to their equity exposure coupled with tax advantage (through deduction under 80C up till an investment worth Rs 1.5 lakh). Also, with these products there is a smaller lock-in period of just 3 years as against a longer tenure with other traditional products such as PPF, ULIPs etc.
So, if you seek to reduce your tax outgo, this product shall no longer serve you as it in the new tax regime shall no more be offering deduction as part of Section 80C. Nonetheless, if you still wish to continue with the old tax regime and both return and tax advantage is your key focus area, you can consider any of the below listed ELSS funds for investments:
Returns from ELSS have been more
In accordance with the Value Research date, ELSS funds over a period of 3 years has managed to deliver returns to the tune of 10.11% and over a 5-year term they have fetched 7.42% return.
Factors considered while listing out best funds
1. Consistency in return:
This is known by computing a measure called H or Hurst Exponent. And higher its value lower is the volatility shown by the fund in comparison to other funds with lower H. The H factor denotes the randomness of NAV series of the fund.
2. Mean rolling return:
3. Asset size: For equity funds, the asset size being considered is Rs. 50 crore.
This is known by computing Jensen's Alpha for the last three years. Jensen's Alpha represents the risk adjusted return delivered by the scheme relative to the estimated return based on CAPM or capital asset pricing model. Higher value denotes that the scheme has outperformed the markets.
5. Downside risk:
For this only the negative returns delivered by the scheme are taken into account. Herein X signifies returns below zero; Y suggest sum of all squares of X; Z-Y/ number of days taken for computing the ratio and here the final downside risk is computed based on the square root of Z.
Top ELSS Funds
1. Axis Long Term Equity (Direct Plan):
This is a CRISIL 5-star rated ELSS fund with maximum exposure in stocks of 95%. NAV of the fund as on February 25, 2020 is 54.87. Fund size is Rs. 21997 crore and expense ratio is 0.91%. As against the category average of just 12%, the scheme in one-year has offered a whopping 23% return. And if investors take the SIP route in the fund with an investment of just Rs. 1000 per month, the annualized yield in 3-year goes up to 14.74%.
Top holdings of the fund include Bajaj Finance, Kotak Mahindra Bank, HDFC Bank, Avenue Supermarts, TCS, HDFC, InfoEdge etc.
2. LIC MF Tax Direct plan:
This is again a CRISIL 5-star rated fund with an asset size of Rs. 273.23 crore. NAV of the fund as on February 25, 2020 is 79.72 while the expense ratio is 1.3%. In a one-year period the scheme has delivered 20.38%. While through the SIP route, taking 3-years into account, the scheme has offered annualized return of 12.38% with an investment worth Rs. 1000 per month for 3 years.
Top holdings of the fund include HDFC Bank, ICICI Bank, Bajaj Finance, Infosys, TCS, City Union Bank, Avenue Supermarts, Bajaj Finserv etc.
3. Canara Robeco Equity Tax Saver -Regular plan (Growth):
This is a 4-star rated ELSS fund from the Canara Robeco mutual fund house. And over the period of one-year, the scheme has delivered a return of 20.8%. The schemes top holdings include HDFC Bank, ICICI Bank, Infosys, RIL, Bajaj Finance, Divis labs etc.
So, if you have a penchant for risk due to exposure for equity and want to reap higher return from the ELSS funds (through the power of compounding advantage over a longer tenure) and want to stick to the old tax regime, these can be some of your best choices. But note that return from mutual funds may or may not replicate past returns. So, do your analysis before hand.
The data is aggregated from moneycontrol site as on February 26, 2020 Mutual funds are subject to market risks and potential investors are suggested to read all the offer documents beforehand to have an insight on the finer print of the offering.
Disclaimer:The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author: Roshni Agarwal has been covering personal finance and investment planning for close to 5 years. She has a degree in MBA, Finance and writes on Mutual Funds, Stock Markets and Currency markets.