When it comes to financial planning, we not only need to keep our eye on the returns, of course but tax benefits as well. For a salaried individual, such investments become all the more essential. Going the smart way and saving tax on investments can add up to significantly higher savings over the long run. The Income Tax Act of 1961, under its Section 80C offers tax deductions under various investment and savings schemes. The maximum tax deduction available under this act is Rs 1,50,000 a year.
Besides PPF and tax saving Term Deposits, there are several Mutual Fund Schemes that offer potentially higher returns, plus tax deductions. Almost all major fund houses offer Equity Linked Saving Schemes, or ELSS, which are popularly called Tax Saving Mutual Fund schemes. Here’s a list of the Top 10 tax saving mutual funds, their historical returns, and risk profiles.
Top 10 tax savings Mutual Funds in 2019
|No||Fund||Value Research Rating||Launch||Risk Profile||3-Year return||5-Year return|
|1||Aditya Birla Sun Life Tax Plan||4||Feb-1999||Moderately high||5.40||9.46|
|2||Aditya Birla Sun Life Tax Relief 96||4||Mar-1996||Moderately high||6.09||10.23|
|3||Axis Long Term Equity Fund||5||Dec-2009||Moderately high||9.58||11.65|
|4||DSP Tax Saver Fund||4||Jan-2007||Moderately high||7.00||10.32|
|5||Motilal Oswal Long Term Equity Fund- Regular Fund||5||Jan-2015||Moderately high||8.55||–|
|6||HDFC Long Term Advantage Fund||4||Jan-2001||Moderately high||8.47||8.36|
|7||Invesco India Tax Plan||4||Dec-2006||Moderately high||6.89||9.75|
|8||JM Tax Gain Fund||4||Mar-2008||Moderately high||8.72||9.74|
|9||Kotak Tax Saver Regular Plan||5||Nov-2005||Moderately high||7.32||10.28|
|10||Mirae Asset Tax Saver Fund- Regular Plan||5||Dec-2015||Moderately high||12.54||–|
Source: Value Research, Moneycontrol
- Aditya Birla Sun Life Tax Plan is an open-ended equity linked scheme with a lock-in of 3 years. It follows the bottom-up approach, focusing on companies in quality businesses with a strong competitive position and having quality management rather than on industries. It aims at long term capital growth. The fund invests almost entirely in Indian stocks, of which about 45% is invested in large cap stocks, approximately 42% in mid cap stocks, and about 13% in small cap stocks.
- Aditya Birla Sun Life Tax Relief 96 is an open-ended equity linked scheme with a statutory lock in period of 3 years as per Section 80C of the Income Tax Act, 1961. The fund offers higher returns compared to other 80C investments with tax savings up to Rs. 46,800 per year. It invests a vast majority of its funds (95%+) of its funds in Indian stocks, with about 40% going to large caps and mid-caps each.
- Axis Long Term Equity Fund is a diversified equity linked saving scheme that invests in a mix of large cap and select mid cap funds. Aiming for long term wealth maximization and tax savings, it is suitable for goals such as children’s education. It invests 94.45% of the funds in Indian stocks of which 64.22% is invested in large cap stocks, 22.87% in mid cap stocks, 7.36% in small cap stocks.
- DSP Tax Saver Fund: About 80% of this fund’s assets are invested in equity assets as per the ELSS guidelines, 2005. With about 72% of its investments in large cap stocks, historically, its returns have been on the higher side. It has delivered over 10% annually over the past 5 years.
- Motilal Oswal Long Term Equity Fund- Regular Fund: The primary aim with this scheme is to generate long term capital gains by investing in a portfolio with predominance in equity and equity related instruments. It invests about 94% of its funds in Indian stocks, with about 98% routed to large cap and mid cap stocks only. While its returns trail its peers, it is no slouch, having delivered 8.55% annually over the past 3 years.
- HDFC Long Term Advantage Fund: This scheme has demonstrated fairly consistent annual gains of close to 8.5% over both a 3-year and a 5-year period. Being a long-term fund, it invests majorly (~74%) in large cap stocks and is therefore a safe bet for the risk averse.
- Invesco India Tax Plan: With a lock-in period of 3 years, this fund has a larger proportion of its funds invested in mid cap stocks at nearly 20%. It has delivered healthy annual returns of about 9.75% over the past years.
- JM Tax Gain Fund: The fund aims to benefit the investors using a diversified and actively managed portfolio of equity and equity related instruments generating capital growth in the long run. Primarily invested in large and midcap stocks, its annual returns have been nearing 10% over a 5-year period.
- Kotak Tax Saver Regular Plan: An open-ended tax saving from Kotak, the fund invests in a variety of equity and equity related instruments to generate long term capital gains. Its riskier bet on mid cap stocks (with over 25% of its investments) seems to be paying off – it has returned 10.28% annually to its investors over the past 5 years.
- Mirae Asset Tax Saver Fund – Regular Plan: An open-ended equity linked saving scheme that provides tax saving benefits and capital appreciation. Another fund largely invested in large cap stocks, having delivered over 12% annually over the past 3 years.
The primary factors we considered while making this selection of top 10 tax saving mutual funds were:
- Consistency in the last three years,
- Mean rolling returns and,
- Asset size, among others.
The top 10 tax saving mutual funds list stated above is not exhaustive and an investor may go ahead keeping their personal choices, budget, risk appetite and the time for which they can lock in their funds.
There can be two modes of investment in ELSS – either in a lump sum, or via a systematic investment plan (SIP). Since investors can invest as low as Rs 500, ELSS mutual funds are suitable for young professionals who may want to start saving early on in their careers. They thus stand to gain from long term investments plus tax deductions.