ELSS Mutual Funds: The 4 Best ELSS Mutual Funds for this year21 August 2021
Equity Linked Savings Schemes or ELSS mutual funds are especially known for the multiple benefits they offer. These funds are invested in equity, which means in the long term, they provide exceptional returns, yet the thing they are most commonly known for are the tax benefits they offer under section 80C of the income tax act 1961. Thus, ELSS mutual funds assist in both wealth creation and tax saving. In the long run, the investment results in more than average returns. However, the risk involved is slightly higher than other forms of long-term investments. In this article, we'll understand all about the ELSS mutual funds and find some of the best schemes to park your funds and enjoy the tax benefits.
What Are ELSS Mutual Funds?
ELSS Mutual Funds are diversified equity-based funds that are eligible for tax benefits under section 80C of the income tax act, 1961. Though more than 65% of a fund is invested in equity and equity-related securities, some of it is also invested in the money market and debt instruments.
As you can read through the name, an ElSS fund is an equity-oriented scheme with a compulsory lock-in period of three years. In recent years, many taxpayers have turned to ELSS schemes to avail of tax benefits. If you invest in ELSS schemes, then you can avail of tax exemption on the invested amount up to a limit of Rs. 1,50,000. Further, the income that you simply earn under this scheme at the end of three years tenure is going to be considered as future Capital Gain(LTCG) and will be taxed at 10%(If the income is above RS. 1 lakh). You can invest in ELSS mutual funds in the form of SIPs or Lump Sums based on your investment choices to get the best returns.
Feature of ELSS Mutual Funds
Here are a few key features of the ELSS Mutual Funds.
- The funds come along with the 3-year lock-in period, which is the lowest of all the other tax-saving schemes under section 80C.
- Usually, more than 80% of the fund is invested in equity and equity-related securities.
- In the long run, they have the potential to provide between 12% - 14% returns.
- They are usually considered high-risk investments.
- There is no maximum tenure of investment.
There are several ELSS mutual funds on the market that you can invest in to achieve your goals. However, it is essential to find out the best ones to assist you in wealth creation and help you grow your investments rapidly. Hence, we at MFonline have come up with a list of the best ELSS mutual funds to invest in, in 2021.
4 Best ELSS Mutual Funds in India
Axis Long Term Equity Fund - Regular Plan-Growth
- The Axis Long Term Equity Fund has an enormous fund size of ₹ 31015.48 crores portraying people's trust in the fund.
- Returns: The fund has put forward amazing absolute returns of almost 590% for an investment made at the time of inception in 2009.
- Risk: The fund is considered a moderately high-risk fund with a CRISIL ranking of 3 which is average for ELSS mutual funds.
- Asset Allocation: Approximately 96.92% of the fund is invested in the Indian Equity Market, while the rest is invested in debt and TREPS.
Edelweiss Long Term Equity Fund (Tax Savings) - Regular Plan-Growth Option
- The Edelweiss Long Term Equity Fund is suitable for people looking for a long-term investment of at least 3 years.
- Returns: The fund has generated great returns for investors over the span of 13 years. The fund shows annualized returns of approximately 16% since its inception and absolute returns of 576%.
- Risk: It is considered a moderately high-risk fund with a CRISIL ranking of 2, but then again if you want to make an omelet you have to break some eggs, which means high risk gives the possibility of high returns.
- Asset Allocation: About 98.85% of this is invested in the Indian Stock Market, further divided into approximately 53% in large-cap stocks, 11% in mid-cap stocks, and 23% in small-cap stocks.
Invesco India Tax Plan-Growth
- Invesco India Tax Plan, as the name suggests, is a fund for planning your taxes and growing your wealth simultaneously.
- Returns: The fund has presented some of the best returns in its category with about 697% of absolute returns for an investment made during its inception.
- Risk: The fund is considered a high-risk investment with a CRISIL ranking of 3, which is considered average for the funds in the ELSS funds category.
- Asset Allocation: About 98.82% of this is invested in equity while the rest is invested in cash and cash equivalent investments. The sector-wise allocation of the fund is impressive and is suitable for investors looking for long-term investments.
Mirae Asset Tax Saver Fund - Growth - Regular
- The Mirae Asset Tax saver fund has presented promising returns ever since its inception back in 2015.
- Past Returns: An investment in the fund during its inception would now be worth 289% of its original value.
- Risk: The Fund is considered moderately risky.
- CRISIL ranking: The Fund has a ranking of 4, which is above the average rating for an ELSS mutual fund.
- Asset Allocation: More than 99% of the fund is invested in the Indian Stock Market diversified as follows: 56% in large-cap stocks, 18% in mid-cap stocks, and 8% in small-cap stocks. The rest of the fund is invested in TREPS, NCDs, and Bonds. The fund is brilliantly diversified into 64 stocks and other equity-related securities.
- The fund is offered by one of the best mutual fund houses and efficiently helps its investors save tax and grow their wealth exponentially.
Who are ELSS Mutual Funds suitable for?
ELSS Mutual Funds are suitable for investors who are willing to park their funds for a three-year lock-in period and are looking for high returns. All the ELSS mutual funds mentioned above have a three-year lock-in period and are eligible for tax benefits. We suggest ELSS mutual funds for anyone looking to save tax and grow their wealth simultaneously. Though the lock-in period for these funds is three years, We would suggest investing for at least five years to obtain substantial returns. When it comes to ELSS mutual funds, one obtains more and more returns with long-term investments. Hence the larger your investment horizon, the better returns you will make.
How to Study ELSS Mutual Funds?
There are a few factors that you need to keep in mind while evaluating ELSS mutual funds. First, with a three-year lock-in period, you need to ensure the mutual fund you are committing to is going to help you achieve your goals effectively. And that is why we are going to tell you a few easy ways to select the best ELSS mutual fund for you.
Fund's Returns over the years
When you are evaluating ELSS mutual funds, it is imperative that you research the returns the fund has been providing for the past years. The funds with the best performance in terms of returns are ideal for investment in ELSS Mutual Funds. However, it is not the only thing that should affect your decision; let's find out some other factors that contribute to choosing the best ELSS Mutual Fund.
Another important thing to keep in mind while selecting the best ELSS mutual funds to invest in is the asset allocation of the funds. The stocks that fund is invested in, the sector it is invested in, and the stability of the stocks matter a lot when it comes to selecting the right mutual fund for a 3-year long investment. The market cap composition is a great indicator of the stability and possible returns of the ELSS mutual funds you choose to invest in.
The CRISIL Rank of an ELSS mutual fund is one of the key indicators of its performance. CRISIL is an Indian analytical company that provides ratings to several financial securities. It was founded in 1987 and has since been relied upon to give the most appropriate ratings to financial securities. The rating of a fund can help you determine its reliability and possible future performance.
The Fund Manager
It is always a good idea to evaluate the fund manager's profile and performance. You can also find out a little about the previous finds they have managed and the performance of those funds during their management period. This would give you a clear idea about the person you are trusting your investment with and help you choose between ELSS mutual funds wisely.
Frequently Asked Questions (FAQs) about ELSS Mutual Funds
Are ELSS Mutual Funds Risky?
ELSS mutual funds are majorly invested in equity, and we all know how risky the Indian stock market can be, so to answer your question, yes, ELSS Mutuals Funds can be risky. However, the fact that the funds are diversified into several high-performing stocks and that the equity market has always grown in the long term irrespective of the short-term ups and downs proves that investing in ELSS mutual funds is a good idea.
How much tax can you save by investing in ELSS Mutual Funds?
Under ELSS Mutual Funds, One can avail tax benefits on a maximum investment of ₹ 1.5 lakh every year. However, that is the total deduction you get under section 80C of the income tax act, 1961, which means if you have invested in other securities that are eligible for a tax deduction, you would still qualify for a whole of ₹ 1.5 lakh only. So, for example, let's say you invested 1 lakh in ELSS mutual funds and 1 lakh in a five-year-long FD; even then, you would be eligible for a tax deduction of ₹ 1.5 lakhs only.
How can you invest in ELSS Mutual Funds?
Investing in ELSS Mutual Funds is made easy with the help of MFonline. All you have to do is register yourself on the MFonline website, complete your KYC procedure and start investing in the stocks of your choice. Or you can also contact the mutual fund experts at MFonline to guide you through the whole process.
In this article, we found out everything one needs to know about ELSS Mutual Funds, the best mutual funds to invest in to save your taxes and earn high profits simultaneously, and how to invest in them. Now that you have all the information you need, it is time to invest in the best ELSS mutual funds based on your risk appetite and budget and earn the best profits. For more information on how to invest in mutual funds to achieve your financial goals, read this brilliant article.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.