Tax Saving Mutual Funds primarily the Equity Linked Savings Scheme (ELSS) offer tax savings and also the ability to beat returns from traditional tax saving schemes.
Salient features of the ELSS scheme:
1) They place money in equities and are diversified equity mutual funds.
2) Since they park money in equities, the returns could be volatile. You can get superior returns over the longer term.
4) Investment in ELSS qualifies for tax rebate under Sec 80C of the Income Tax Act.
5) Returns are tax free.
Tax saving mutual funds over the last three years have given superior returns. This does not mean that they would always continue to beat the traditional tax savings schemes like tax saving bank deposits or Public Provident Fund (PPF). Their returns are always subject to market risk and should be invested after careful research.
Some of the best tax saving mutual funds today, could be bad performers tomorrow. Therefore, we are highlighting a list of tax saving ELSS mutual funds that have a sizeable corpus and have a proven track record.
Returns from tax saving ELSS mutual funds in last few years:
|1 Year Return||3 Year Return||5 Year Return|
|Axis Long Term Equity Fund||17.00%||30.00%||19.43%|
|Birla Sun Life Tax Plan||17.00%||24.21%||13.31%|
|DSP Blackrock Tax Saver Fund||7.21%||11.23%||21.21%|
|ICICI Prudential Long Term Equity Fund||3.02%||21.21%||12.45%|
|IDFC Tax Advantage ELSS Fund||11.01%||24.88%||12.36%|
|Franklin India Tax Shield||14.01%||23.67%||21.45%|
|Reliance Tax Saver Fund||0.87%||24.43%||13.51%|
|Tata Long Term Equity Fund||13.05%||22.67%||12.21%|
|BNP Paribas Long Term Equity Fund||0.21%||13.27%||24.31%|
From the above table it is rather clear that some of the best tax saving mutual funds in India have offered superb returns over the last 3-5 years.
For example, Axis Long Term Equity Fund has given a return of almost 30 per cent in the last three years. If you closely study the portfolio of Axis Equity, you would realize that the portfolio comprises of blue chip stocks like HDFC Bank and Infosys. These stocks have a heavy weightage in the company's portfolio.
Should the market recover, expect these stocks to do well, thus propelling the returns and the net asset value of Axis Long Term Equity Fund even higher.
Birla Sun Life Tax Plan has also given good returns in the last 3-5 years and so have most other funds. This makes a strong case for investment in some of the best tax saving ELSS mutual funds in the country.
If you add the tax savings benefits that you get from these ELSS mutual funds, you would realize that your returns are far superior, once you consider the savings from tax benefits. For example, if these give you a return of 20 per cent per annum and you are in the 10 per cent tax bracket, returns would be 30 per cent.
This makes these Tax Saving Mutual Funds a good investment proposition. Do not wait for end of the financial year to invest, go ahead and invest now as NAVs have dipped in the last 2 months.