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Best ELSS Mutual funds 2019 – Top 10 Tax Saving Mutual Funds

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Tax planning is a crucial part of an investor’s financial plan. Section 80C of the Income Tax Act, 1961, is designed such that it offers tax deductions for investors investing in various savings and investment schemes. The maximum tax deductions allowed is Rs 1,50,000 a year. Equity Linked Savings Scheme (ELSS) is one such tax saving avenue.

1. What are the Best ELSS Mutual Funds?

Equity-linked savings scheme, as the name suggests, are equity-based mutual funds. These are the only kind of mutual funds eligible for tax deductions. These mutual funds come with a lock-in period of three years, which is the shortest among all Section 80C options. The investment can be made either in a lump sum or a systematic investment plan (SIP). Investors can invest as low as Rs 500, and there is no upper limit.

2. Who should invest in ELSS Mutual Funds?

ELSS funds are chosen by investors who are willing to take a risk as these investments are equity-linked. Since there is a risk of volatility, it is advisable to invest for more than the lock-in period, which is three years for ELSS. Young investors in the initial years of their professional career can invest with a long-term horizon. ELSS is best suitable for young investors as they have time on their side to unleash the power of compounding to the fullest to enjoy high returns while saving on taxes of up to Rs 46,800 a year.

3. Advantages of ELSS Mutual Funds

a) The lock-in period of three years is the shortest of all Section 80C avenues.

b) ELSS mutual funds have the potential to offer much higher returns than other tax saving instruments such as PPF or NPS.

c) Earnings are taxed only at 10% of the gains.

d) There is no maximum limit to invest.

e) Investors need not have in-depth knowledge of the markets. Mutual funds are managed by professional fund managers who have the unmatchable experience, and they work towards maximising the return on your investment.

4. Disadvantages of ELSS Mutual Funds

a) ELSS is not completely risk-averse like other tax saving options such as EPF and PPF. Their risk profile is similar to any equity-oriented mutual fund scheme. It is just that these provide tax deduction benefits.

b) ELSS mutual funds have delivered good returns on if invested for more than five years. An investor should enter into equity (or ELSS) only if the holding period is more than five years, and with proper asset allocation.

c) Most mutual funds houses will not accept investments from investors living in Canada and the United States.

5. Options for Investing in the Best ELSS Mutual Funds

a) Growth Option

Under the growth option, the holder will not receive benefits in the form of dividends. The investor gets the gains at the time of redemption, and this helps to appreciate the total NAV and thus multiplies the profits. The only caution here is that the returns are subject to market risk. Markets might not work in the investor’s favour every time.

b) Dividend Option

Under this option, an investor gets timely benefits in the form of dividends which are completely tax-free.

c) Dividend Reinvestments Option

This is an option under which an investor invests the dividends received in order to add to the NAV. This is a good option particularly when the market is playing well and is likely to continue the same way.

6. How to evaluate the Best ELSS Mutual Funds

a) Fund Returns

You need to look at the fund’s recent performance for a minimum of five years before investing in that particular fund. Choose that fund which has performed better than the benchmark and other similar funds in the same time frame.

b) Fund History

Choose fund houses that have performed consistently over a long period, say five years to 10 years.

c) Expense Ratio

Expense ratio depicts how much of your investment goes towards managing the fund. A lower expense ratio translated into higher take-home returns. Needless to say, you need to choose that fund, which has a lower expense ratio.

d) Financial Parameters

Consider various parameters such as Standard Deviation, Sharpe ratio, Sortino ratio, Alpha, and Beta to analyse the performance of a fund. A fund having a higher standard deviation and beta is riskier than a fund having a lower deviation and beta. Choose funds having a higher Sharpe Ratio as they offer higher returns for each additional risk you take.

7. Top 10 Best ELSS Mutual Funds

While selecting a fund, you should analyse and compare different parameters of various funds before choosing one. Also, investing depends on an individual’s financial goals, investment horizon, and risk appetite. The following table shows the top-performing ELSS funds based on the past three years returns.

Top ELSS Funds

5-year Returns

Quant Tax Plan – GrowthELSS


SBI Tax Advantage Fund – Series II – GrowthELSS


SBI Tax Advantage Fund – Series III – Regular Plan – GrowthELSS


Kotak Tax Saver Scheme – Direct Plan – GrowthELSS


Axis Long Term Equity Fund – GrowthELSS


*The order of funds do not suggest any recommendations. The investor may choose the funds as per their goals. Returns are subject to change.

Investing in mutual funds might be a cumbersome task for an amateur investor. In case you are finding it difficult and not able to decide which fund is the best for your requirements, then reach out to us. We offer only handpicked funds from experts.