5 Best ELSS Funds SIP’s In India For 2016

ELSS funds (Equity Linked Saving Scheme)  are the best and most popular tax saving options for the investors in India since from their launch. ELSS investment has 2 best benefits of “Tax saving” & “Wealth generation”. If you are planning to reduce tax, in addition, want to take best returns taking advantage of Equity, you must choose best ELSS fund for investment. Let’s quickly look at features & benefits of ELSS and try to analyze and identify the best ELSS tax saving Mutual funds for your investment.

best ELSS in India

Point to remember while investing in ELSS funds –

SIP Investment mode is advisable over the lump sum because it gives you rupee-cost averaging.

Growth Option – Select Growth Option over dividend for wealth generation. The growth option simply implies that the profits you make stay reinvested. In other words, the profits, along with your capital, are invested in stocks/debt to earn you more money.

Invest in Direct Plan – Since from 2012, direct plans are available in all categories in mutual fund schemes, which eliminates the distributor and reduce the overall cost of around 0.25% to 0.70% p.a. This will automatically increase your return over a period of time.

Stay Invested – India economic outlook looks to be in a very good condition in coming 3-5 years, so it is advisable to stay invested in ELSS beyond lock in period of 3 years for long-term wealth creation.

See –Why ELSS is Best Tax Saving Option than PPF, NSC & Bank Fixed Deposits

Considerations for choosing best ELSS Mutual fund –

– Returns overs last 5 years

– CRISIL performance ranking – Always choose CRISIL 1 or 2 rank funds

– Assets Under management (AUM) – It is advisable that fund should be well settled in terms of its capital, so AUM should be approximately greater than Rs. 1000 Cr.

– Expense Ratio – Lower the expense ratio, higher the returns

– Funds Past performance

– Beta-Volatility measure and tell how much the fund changes for a given change in the Index. Lower the beta, lower the volatility. Hence, your fund must have lower beta.

– Standard deviation-It tells us how for a given set of returns, how much do fund returns deviate from the average. Lower the standard deviation, lower the volatility. Hence, your fund must have lower beta.

– Alpha-The risk-adjusted measure. By taking risks, how much the fund manager generated the return over the benchmark. Higher the alpha, higher the out performance of the fund.

– Information Ratio-This is calculated by average excess return obtained compared to a benchmark and divides it by the standard deviation of excess returns. Higher the information ratio, the higher the consistency in beating the benchmark.

– R-squared- Measure of how correlated the fund’s NAV movement is with its index.

– SIP & Lump Sum Returns-For how many times the fund’s returns are above the index when we invest in SIP & Lump Sum.

See –Steps to Choose Best Mutual Fund

Below is the list that I have prepared for the best ELSS schemes in India.

Best elss mutual funds

Top 5 Best ELSS Mutual Funds (* Returns over 1 year are annualized)

Among these five tax saver mutual funds, Axis Long Term Equity growth has come on the top of best ELSS list. This fund is performing extra ordinarily due to which this on radar of many investor. Axis long term has beaten its peers with big margin. Be it one year, 3 year or 5 year period, Axis long term equity fund is way ahead. Also it has taken below average risk so you can definitely go to this fund. Jinesh Gopani is managing this fund from last 5 years & he is considered as an expert in market research.

See below snap of Axis Long Term Equity Fund performance updated as on 4th August 2016.

Best ELSS in India

Axis Long Term Equity ELSS (Image Source – Moneycontrol.com

Franklin India Tax Shield Fund is the number two. It took the low risk and given the best returns in one and 2 year period. Franklin Funds have developed a fair process to avoid the big risk. It does not endeavor into small caps and midcaps. Rather it watches for the value pick among the large cap stocks. The Fund manager Anand Radhakrishnan is an old hand and he has performed quite well since last 9 years.

See below snap of Franklin India Tax Shield Fund performance updated as on 4th August 2016.

Best ELSS in India

Franklin India Tax Shield Fund Performance (Image Source – Moneycontrol.com)

See –Top 5 Best Small Cap & Mid Cap Mutual Funds in India for 2016

Reliance Tax Saver (ELSS) Fund is also one of the best performing funds. This fund is managed by Ashwani Kumar. This fund is a mid-cap fund that means most of your money will be invested in stocks of medium-sized companies. About 51.29% of the fund’s money is allocated to stocks of mid-size companies, 31.48% to stocks of small size companies and the remaining to those of large companies. Mid-size stocks can give kicker returns as they turn into large stocks but this happens not so frequently.

See below snap for the performance of this fund in last 5 years, updates as on 4th August 2016.

ELSS Funds - Best ELSS in India

Reliance Tax Saver Performance (Image Source – Moneycontrol.com)

As you can see that returns over 1 year & below are a bit lower, this is because the year 2015 & initial 2016 was not good for the share market. The market was very volatile and it could not continue the rally of 2014 due to global economic reality and domestic politics. There would be progress in the economic growth, but the pace would be gradual. Thus, we are not going to see any extended rally in the stock market. But, 2016 is going to be better than 2015.

Summary –

ELSS gives you both Tax Saving as well as very good returns on your investment compared to other tax saving instruments. 2-3 best ELSS are advisable per portfolio to have a good mix.

There are risks involved in buying mutual funds just like with any other investment. These investment options can experience market fluctuations and sometimes provide returns below the overall market. So you might not want to take out money when markets are trending lower.

It is advisable to monitor and review the performance of the scheme at least once in a quarter so that you can take the corrective step if fund selected by you starts none performing compared to its bench mark index.

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12 Replies

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  1. Vishwajeet says:

    Axis long term equity really tops the list. :). thanks for sharing all the factors that are required to select mutual fund. Looking forward to see many more such articles from you.

    • Ashu says:

      Hi Vishwajeet, obviously axis leads the chart for more than 5 years in best elss mututal fund category. Franklin India is also one of the best fund you can go ahead with. Thanks for the praise.

      • Vishwajeet says:

        My friend suggested me Axis ELSS, so i think that is best but i want to learn more about selecting mutual funds. Can you please let me know which websites do you prefer while selecting top mutual funds & where I can get reliable data of these funds on regular basis?

  2. Niteish says:

    Thank you sir for this article..all the elss funds you have given looks very good..can i invest in more than 1 elss funds and claim tax for both..

    • Ashu says:

      Hi Niteish, definitely you can claim tax for all the elss funds in your portfolio. But note that it has maximum limit of Rs.1.5 lacks per year. Try to have at least 2 best elss funds in your portfolio for diversification.

  3. Sushant Kulkarni says:

    Very well summarized and informative. Simple to understand.

    The axis mutual fund mentioned here – Axis Long Term Equity Fund – is direct or growth? Does it being regular or growth affect the performance [ other than fund expense /management fees]??
    Since I wanted to invest by myself I was planning to go for Direct fund. Please suggest which would be better regular or direct?

    • Ashu says:

      Hi Sushant, Thanks for your words.

      Seems like you have confusion in plan & investment option. Here is the detailed explanation.
      There are 2 plans…..first is Regular & second is Direct. And after that there are 2 option named Growth & Dividend….
      In Growth option your returns are added to your original investment, so it’s kind of compounding, which obviously is great in long term. In dividend option you get some amount back in some interval every year….I would suggest you to choose Growth as a Option…

      Now coming back to Plan…As you are making good decision by making investment in Direct Plan (you will definitely save 0.5-0.75% per year). There is no change in performance for both Direct & Regular Plans.

      Final words….Choose DIRECT plan & GROWTH option…

      See more detailed review of Axis long term equity fund here.

      Hope this helps!….

      • Sushant Kulkarni says:

        thank you for the info. Yeah I see now I messed up my question using growth and regular interchangeably. I was just concerned between Direct and regular itself for any mutual fund. Some ratings have mention of regular – so wanted to know if for the same MF direct would have any different performance.

        Thanks for answering despite silly error in question.

        • Ashu says:

          You have choosen best elss fund & You are on correct path…Keep Investing..Spread Investment awareness with your friends too..Happy Investing!

  4. Prasad says:

    If one is planning to invest only small amount, say less than 20,000 in a particular ELSS MF, is it better to go for SIP or lump sum? If market is performing well, then isn’t advantage of SIP reduced – i.e. will be buying units at higher price ? Or the advantages of SIP still valid for investments of below 10K or 20k?

    • Ashu says:

      Hi Prasad,
      You never know which is bottom or top of the market, so it is always wise to go for SIP. ELSS investments are for the long term, so SIP gives you rupee cost averaging advantage over this term.

      If you think that at particular time it is the bottom of the sensex (for that period), let’s say 24000 (currently at 28000), then you can invest lumpsum as you mentioned.

      I had the same thinking as you are when i started investing, but believe me it’s very hard to TIME THE MARKET. Hope this helps!

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