2 Best ELSS Funds To Invest In 2021 Based On 5-star Rating Of Morningstar

Although the Indian stock market is expected to be turbulent in the near future, the Sensex and Nifty 50 are now at all-time highs. Let me make it clear to new investors who want to generate good returns from equity at the current level that equities have always been proven to perform well over the long run, and thus price movements may ascend from current levels, but they are also susceptible to volatility, which investors must keep in mind. On the other hand, investors who desire to invest for both returns and tax savings of up to Rs 1.5 lakh under Section 80C of the Income Tax Act can invest in Equity-Linked Savings Schemes (ELSS), which is a diversified scheme that can build a solid wealth if held for long-term.

Although ELSS comes with a lock-in period of three years it is advised to invest for more than that based on the Net Asset Value (NAV) and benchmark index of their selected funds for long-term wealth creation with tax benefits. ELSS funds should be chosen based on a number of factors, including the fund's market cap diversification, the fund's past performance, the fund managers' experience, funds with a low experience ratio, your investment goal, risk appetite, fund ratings assigned by leading agencies and most importantly investors should eschew over-diversified funds, which may result in below-average risk-adjusted returns. Based on outperforming their benchmark and stability in terms of delivering average beating returns in a timeframe of 1 to 5 years, here are the best performing ELSS funds that are rated 5/5 by Morningstar that you may consider investing in 2021.

DSP Tax Saver Fund Regular Plan Growth

This fund has been there for eight years having been launched by the fund house DSP Mutual Fund in 2013. DSP Tax Saver Direct Plan-Growth CAGR returns for the past year were 66.52 percent, and it has generated 18.91 percent average annual returns since its commencement. The fund has its equity allocation across the Financial, Technology, Energy, Construction, Metals sectors. ICICI Bank Ltd., Infosys Ltd., HDFC Bank Ltd., Axis Bank Ltd., and State Bank of India are the fund's top five holdings.

The fund's expense ratio is 1.76 percent, which is much higher than most other ELSS funds. The fund has been rated 5-star as of 24th August 2021 by Morningstar, and it has also been rated 4-star by Value Research and ranked 2 by CRISIL which indicates the consistency of the fund in terms of generating returns. As of 28th September 2021, the fund has a Net Asset Value (NAV) of Rs 87.415 and an Asset Under Management (AUM) of Rs 9,674.96 Cr as of 31st August 2021. The fund has no exit load as it has a lock-in term of 3 years and you can start making SIP in this fund with a minimum amount of Rs 500.

CAGR since Inception	DSP Tax Saver Fund	NIFTY 500 TRI	NIFTY 50 TRI
1 Year	66.52%	56.94%	52.24%
3 years	19.46%	14.59%	14.94%
5 Years	17.33%	15.53%	15.70%
Source: invest.dspim.com, as of August 31, 2021

Axis Long Term Equity Direct Plan Growth

This fund was launched by the fund house Axis Mutual Fund in the year 2009 and thus is performing well for the last 12 years. Since its inception, the fund has generated an annualized return of 18.72%. Axis Long Term Equity Direct Plan-Growth returns of the last 1-year are 59.33%, according to the information from the website of the fund house. The fund has a major equity allocation across the Financial, Services, Technology, Chemicals, Healthcare sectors. Bajaj Finance Ltd., Tata Consultancy Services Ltd., Avenue Supermarts Ltd., Info Edge (India) Ltd., Divi's Laboratories Ltd. are the fund's best-performing holdings.

The fund has been rated 5-star by Morningstar as of 30th December 2019. The fund has also achieved a 4-star rating by Value Research and ranked 3 by CRISIL. The fund has an expense ratio of 0.77%, which is quite low by the expense ratio of other funds in the same category. As of 28th September 2021, the fund has a Net Asset Value (NAV) of Rs 75.97 and the AUM of the fund is Rs 33,871.43 as of 31st August 2021. One can start a minimum SIP contribution of Rs 500 per month in this fund.

Period	Annualised(%)	S&P BSE 200 TRI Benchmark(%)	Nifty 50 TRI Additional Benchmark(%)
Since inception 29th December 2009	18.72%	12.57%	12.13%
5 Years	17.31%	15.82%	15.70%
3 Years	16.89%	14.96%	14.94%
1 Years	59.33%	55.45%	52.24%
Source: axismf.com, Regular Growth as of August 31, 2021

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