Article

Top 5 ELSS for 2018

Jitender Singh

03 Apr 2018

Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund in which investments up to Rs1.5 lakh per financial year are tax deductible under section 80C. In other words, investors don’t have to pay tax on investment up to Rs.1.5 lakh in ELSS. By investing in ELSS, an investor in the 30% tax bracket can save Rs.46,350 as tax.

Below table exhibits the amount of tax one can save by investing Rs.1.5 lakh in ELSS for different tax slabs.

Tax Bracket 5% 20% 30%
Tax Saving Rs.7,725 Rs.30,900 Rs.46,350

*Includes 3% cess also

Besides tax benefits, ELSS investments also offer other benefits discussed below.

  1. Wealth creation with tax-saving – Historically, it has been seen that ELSS schemes have given significantly higher returns than other tax saving schemes like PPF, 5-year FD, EPF, etc.
  2. Shortest lock-in period – ELSS has a lock-in period of 3 years, which is the shortest among all tax-saving instruments.
  3. Tax free capital gains: The long-term capital gains from investment are tax-free.
  4. Dividends are tax-free: Dividends received are tax-free in the hands of the investor right from the year of investment.
  5. Low investment amount: Investors can start investing with Rs500 in lump sum or via SIP in ELSS. Since it is difficult to invest a lump sum amount in one go, SIP helps a person to invest small amounts at regular intervals. SIP payment is auto-debited from your bank account every month.

ELSS is the best way to save tax and create wealth in the long term. Below are the top 5 recommended ELSS funds.

Scheme Name Fund Manager Corpus (cr) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Tax Relief '96(G) Ajay Garg Rs.4,349 41.6 16.3 21.6
Axis LT Equity Fund(G) Jinesh Gopani Rs.15,408 35.7 12.2 22.4
DSPBR Tax Saver Fund-Reg(G) Rohit Singhania Rs.3,571 34.4 15.6 20.1
IDFC Tax Advt(ELSS) Fund-Reg(G) Daylynn Pinto Rs.798 52.2 17.4 21.6
Reliance Tax Saver (ELSS) Fund(G) Ashwani Kumar Rs.10,157 44.2 13.3 22.4

1 year returns are absolute; 3 year and 5 year returns are CAGR.
AUM as of November 2017, Returns are as on January 02, 2018

Aditya Birla SL Tax Relief ‘96 Fund

  • Aditya Birla SL Tax Relief ‘96 Fund does tactical allocation between large cap and mid-= cap stocks to ensure optimal risk reward.
  • As of November 2017, the fund has invested ~37% of its AUM in large cap stocks, ~55% in mid cap stocks and ~7% in small cap stocks to generate higher returns.

Axis Long Term Equity Fund

  • Axis Long Term Equity mutual fund  invests in companies with sustainable profit growth to generate wealth over 3-4 years.
  • Besides, the fund manager follows bottom-up approach to select the companies.
  • As of November 2017, the fund has invested ~66% of its AUM in large cap stocks while ~30% in mid cap stocks to generate alpha.

DSPBR Tax Saver Fund

  • DSPBR Tax Saver Fund primarily invests in large cap stocks with some tactical allocation to midcap and small cap stocks to generate higher returns.
  • The fund manager follows buy-and-hold strategy for majority of the portfolio. He also takes active and tactical calls to exploit the market opportunities.
  • As of November 2017, the fund has invested ~71% of its AUM in large cap stocks and ~22% in mid cap stocks to generate higher returns.

IDFC Tax Advantage (ELSS) Fund

  • IDFC Tax Advantage (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate higher returns.
  • As of November 2017, the fund has invested ~46% of its AUM in large cap stocks, 29% in mid cap stocks and 20% in small cap stocks in order to generate higher returns.

Reliance Tax Saver (ELSS) Fund

  • Reliance Tax Saver (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate high returns.
  • The fund invests in potential leaders with high growth prospects.
  • Generally, the fund takes 2-3 sector call at a time and invests in high conviction mid cap stocks.
  • As of November 2017, the fund has invested ~60% of its AUM in large cap stocks, 25% in mid cap stocks and 15% in small cap stocks in order to generate higher returns.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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Top 5 ELSS for 2018

Jitender Singh

03 Apr 2018

Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund in which investments up to Rs1.5 lakh per financial year are tax deductible under section 80C. In other words, investors don’t have to pay tax on investment up to Rs.1.5 lakh in ELSS. By investing in ELSS, an investor in the 30% tax bracket can save Rs.46,350 as tax.

Below table exhibits the amount of tax one can save by investing Rs.1.5 lakh in ELSS for different tax slabs.

Tax Bracket 5% 20% 30%
Tax Saving Rs.7,725 Rs.30,900 Rs.46,350

*Includes 3% cess also

Besides tax benefits, ELSS investments also offer other benefits discussed below.

  1. Wealth creation with tax-saving – Historically, it has been seen that ELSS schemes have given significantly higher returns than other tax saving schemes like PPF, 5-year FD, EPF, etc.
  2. Shortest lock-in period – ELSS has a lock-in period of 3 years, which is the shortest among all tax-saving instruments.
  3. Tax free capital gains: The long-term capital gains from investment are tax-free.
  4. Dividends are tax-free: Dividends received are tax-free in the hands of the investor right from the year of investment.
  5. Low investment amount: Investors can start investing with Rs500 in lump sum or via SIP in ELSS. Since it is difficult to invest a lump sum amount in one go, SIP helps a person to invest small amounts at regular intervals. SIP payment is auto-debited from your bank account every month.

ELSS is the best way to save tax and create wealth in the long term. Below are the top 5 recommended ELSS funds.

Scheme Name Fund Manager Corpus (cr) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Tax Relief '96(G) Ajay Garg Rs.4,349 41.6 16.3 21.6
Axis LT Equity Fund(G) Jinesh Gopani Rs.15,408 35.7 12.2 22.4
DSPBR Tax Saver Fund-Reg(G) Rohit Singhania Rs.3,571 34.4 15.6 20.1
IDFC Tax Advt(ELSS) Fund-Reg(G) Daylynn Pinto Rs.798 52.2 17.4 21.6
Reliance Tax Saver (ELSS) Fund(G) Ashwani Kumar Rs.10,157 44.2 13.3 22.4

1 year returns are absolute; 3 year and 5 year returns are CAGR.
AUM as of November 2017, Returns are as on January 02, 2018

Aditya Birla SL Tax Relief ‘96 Fund

  • Aditya Birla SL Tax Relief ‘96 Fund does tactical allocation between large cap and mid-= cap stocks to ensure optimal risk reward.
  • As of November 2017, the fund has invested ~37% of its AUM in large cap stocks, ~55% in mid cap stocks and ~7% in small cap stocks to generate higher returns.

Axis Long Term Equity Fund

  • Axis Long Term Equity mutual fund  invests in companies with sustainable profit growth to generate wealth over 3-4 years.
  • Besides, the fund manager follows bottom-up approach to select the companies.
  • As of November 2017, the fund has invested ~66% of its AUM in large cap stocks while ~30% in mid cap stocks to generate alpha.

DSPBR Tax Saver Fund

  • DSPBR Tax Saver Fund primarily invests in large cap stocks with some tactical allocation to midcap and small cap stocks to generate higher returns.
  • The fund manager follows buy-and-hold strategy for majority of the portfolio. He also takes active and tactical calls to exploit the market opportunities.
  • As of November 2017, the fund has invested ~71% of its AUM in large cap stocks and ~22% in mid cap stocks to generate higher returns.

IDFC Tax Advantage (ELSS) Fund

  • IDFC Tax Advantage (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate higher returns.
  • As of November 2017, the fund has invested ~46% of its AUM in large cap stocks, 29% in mid cap stocks and 20% in small cap stocks in order to generate higher returns.

Reliance Tax Saver (ELSS) Fund

  • Reliance Tax Saver (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate high returns.
  • The fund invests in potential leaders with high growth prospects.
  • Generally, the fund takes 2-3 sector call at a time and invests in high conviction mid cap stocks.
  • As of November 2017, the fund has invested ~60% of its AUM in large cap stocks, 25% in mid cap stocks and 15% in small cap stocks in order to generate higher returns.

Research Disclaimer