Top 5 Best Tax Saving ELSS Mutual Funds 2021-22

For salaried employees, the deadline to submit the provisional tax saving investment proofs is fast approaching. Most of the employers collect the documents in January. During this period investors/employees who have not done their tax planning rush to buy life insurance policies or some other tax saving investments.

Equity Linked Tax Saving Mutual Fund Scheme has been one of the best investment avenues both in terms of tax benefit and wealth creation. ELSS funds are best suited for self-employed individuals too.

But, with the introduction of (optional) New Tax Regime, the tax benefit on ELSS Mutual Fund investments (u/s 80c) will no more be available for FY 2020-21 / AY 2021-22.

What does the New Tax Regime say?

The Finance Bill 2020 introduced new tax regime, offers an optional lower rate of income tax to individuals with slab rates of 15% and 25% in addition to the 10%, 20% and 30% slab rates.

Individuals opting to pay tax under the new proposed lower personal income tax regime will have to forgo almost all tax breaks that you have been claiming in the old tax structure.

So, all deductions under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) will not be claimable by those opting for the new tax regime.

In case, you wish to continue with the old tax slab rates (if its beneficial to you) then you can continue investing in ELSS Mutual Funds and can claim tax deduction under Section 80c. Kindly note that you can opt for the new tax regime and can still invest in ELSS funds but you can not claim the tax deduction. So, it’s not a prudent choice!

Related Article : New Income Tax Slab Rates Vs Old Tax Regime | Which one is better?

In this post, let us discuss – Which are the Best Tax Saving ELSS Mutual Funds 2021? Which are the top performing Tax Saving Mutual Fund Schemes to invest in 2021 and beyond? Which ELSS Fund is best to invest in FY 2021-22? What are the best ELSS SIP Funds?…

Best Tax Saving Mutual Funds 2020

In my last review of ELSS Funds, I have listed below ELSS mutual funds that can be considered for investment;

• Axis Long Term Equity Fund
• Invesco India Tax Plan
• Birla Sun life Tax Relief ’96 Fund
• DSP Blackrock Tax Saver Fund
• TATA India Tax Savings Fund

Let us now see if these funds have again made it to the list of this year’s Best ELSS Mutual Funds to invest in 2021-22..

Comparison of Top Performing ELSS Funds

When we are making a comparison of equity mutual funds, it is ideal to track not only the investment returns generated by these funds but also the ‘risk ratios’ pertaining to them.

The volatility of returns generated by a mutual fund scheme can be measured by some important risk ratios like;

• Standard Deviation
• Beta
• Alpha
• Sharpe Ratio
• R-Squared Ratio
• Upside & Downside Ratios

Below info-graphic gives us an idea about ideal ratio/percentage that can be considered while selecting a mutual fund scheme;

The Risk Measures for the last three years have been considered for analysis.

Top 5 Best Tax Saving ELSS Mutual Funds 2021-22

We currently have around 38 funds under the ELSS Fund category. The average returns from ELSS fund category are around 13.5% and 12% in the last 5 and 10 years respectively.

In my opinion, below are the consistent and best ELSS Mutual Funds to invest for tax saving and long term wealth creation;

• Axis Long Term Equity Fund
• Aditya Birla Sun life Tax Relief ’96 Fund
• Canara Robeco Equity Tax Saver
• DSP Blackrock Tax Saver Fund
• Invesco India Tax Plan

The only change that I made to the list when compared to last year’s is – I have replaced TATA India Tax Savings Fund with Canara Robeco Equity Tax Saver.

In case, you have been investing in TATA India Tax Savings Fund, you may continue with your investment plan. But, keep on eye on its standard deviation.

You may also track the performances of Mirae Asset Tax Saver Fund and Kotak Tax saver Plan as well.

Axis Long Term Equity Fund

• It is the most popular scheme of the ELSS category with around Rs. 27,000 crore worth of assets under management.
• Follows a focused investment style with current investment in a total of 32 stocks. As for asset allocation, it currently has large cap (83%) oriented allocation and has 16% in the mid/small caps.
• A great performer in the market downturn and the fund has consistently beaten average category returns for the past many years. It has given around 17% returns in the last 10 years.
• Axis LTE has a very good Capture Ratio. (Capture ratio is calculated as Upside Ratio divided by Downside ratio. For example, a fund with an upside-capture ratio of 100% and a downside ratio of 80% would have an upside/downside ratio of 1.25. Any ratio above 1 means that a fund does a good job of capturing gains during bull phases while lessening the impact of bear markets.)
• The Financials, Services and Technology related stocks have been its favorite picks.

Aditya Birla Sun life Tax Relief ’96 Fund

• One of the oldest and most consistent schemes of the mutual fund market. Since inception (1996), it has provided an annual average return of more than 23%.
• It follows a mid cap and large cap-oriented style of investing with a mildly diversified portfolio of 40 stocks.
• The fund has around 55% allocation to mid/small cap stocks. This could be one of the major reasons for its under-performance in the last couple of years.
• Also, it has a very high portfolio turnover ratio which means the stock selling and picking is very frequent, making this scheme a bit aggressive.
• An existing (aggressive) investor as well as a new investor can consider investing in this fund for long-term.
• The Financials and Healthcare related stocks are its favorite picks.

Canara Robeco Equity Tax Saver

• The recent performance of this fund has been fantastic.
• The standard deviation and Aplha ratios have improved a lot.
• It follows large cap-oriented & mid-cap style of investing with a well diversified portfolio of 50+ stocks.
• The fund has around 70% allocation to large-cap stocks and 30% allocation to mid/small cap stocks.
• The Financials and Technology related stocks are its favorite picks.

DSP Blackrock Tax Saver Fund

• This fund has been a consistent long-term performer, with a track record of beating the benchmark and category returns at every cycle. But, watch-out for slightly higher standard deviation.
• Follows a diversified portfolio and as of now has investments in 55+ stocks picked across different sectors.
• Changes the sector allocation as per the market trends to ensure that investors get the best value for their money in the long-term.
• The fund primarily follows large-cap orientation and has an allocation of around 70% to large cap stocks.
• The Financials, Technology & Healthcare related stocks have been its favorite picks.

Invesco India Tax Plan

• One of the best schemes provided by Invesco Mutual Funds.
• The fund generated around 14% (CAGR) returns in the last 10 years and is ranked at no.2 in terms of performance.
• The Financials, Technology & FMCG related stocks have been its favorite picks.

Latest Article : Top 15 Best Mutual Funds 2021 & beyond | Top Performing Equity Funds

My ELSS Investments :

Personally, I have been investing in Axis Long Term Equity fund till FY 2019-20.

We (my spouse & myself) have decided to opt for ‘new tax regime‘, hence ready to forgo Section 80c tax deductions. So, I have decided to discontinue my future investments in Axis LTE ELSS Tax Saving Fund (will hold on to the existing units though).

FAQs on ELSS Funds

• My Section 80C bucket is full, should I still invest in an ELSS Fund? – If you are planning to go ahead with old tax regime and your 80c bucket is already full (with your EPF/PPF/NPS etc) then you may consider investing in other mutual fund categories based on your investment objectives and time-frame.
• Dividend or Growth option, which is better for ELSS investment? – Growth option is better than dividend for long-term wealth accumulation. Avoid dividend option!
• Are ELSS funds also Diversified funds? – We need to look at Funds’ Portfolio allocations to consider them as Large cap or mid-cap or multi-cap oriented funds. As mentioned in the above analysis, funds like Aditya Birla Tax Relief fund has higher portfolio allocation to mid/small cap Stocks. (Do note that Portfolio allocations can change over a period of time depending on the market cycles / Fund’s investment strategy.) 
• Can I invest in Joint names? – Yes, investments in ELSS funds can be held in joint-names. But, the first account holder (primary) can only claim tax benefits u/s 80c.
• ULIPs Vs ELSS, which is a better investment option? – You may kindly go through my article on this topic @ ‘Mutual Funds Vs ULIPs – Which is better?’
• Is the 3 year Lock-in period for ELSS Investments applicable on unfortunate demise of the Investor?
  • ELSS mutual funds have a lock-in period of 3 years. In the event of death of the investor, the nominee or the legal heir can withdraw the amount, only 1 year after the date of allotment of units to the deceased (original investor / unit-holder).
  • For example : If the investor dies eight months after purchasing the units, the nominee has to wait for at least four more months to be able to sell the units (if he/she wants to redeem..).
  • Kindly note that nominee can get the units transferred to him/her much earlier but can’t sell those until 1 year is over. Essentially, the lock-in period goes down from 3 years to 1 year in the event of demise of the original investor. This information can be found in any of the ELSS funds ‘scheme information documents’.

Kindly note that the above list of top & best ELSS mutual funds 2021 is not an exhaustive one. Mutual funds’ returns are not guaranteed, their values/returns change frequently and past performance may not be repeated. MFs are subject to various market risks.

Continue reading :

1. Top 15 Best Mutual Funds 2021 & beyond | Top Performing Equity Funds
2. Mutual Funds Taxation Rules FY 2020-21 (AY 2021-22) | Capital Gains Tax Rates Chart
3. RBI’s statistical data on Indian Household Investments & Savings (2018-19) | How & Where do we save & invest?
4. What are Mutual Fund Upside / Downside Capture Ratios? | How to use them in MF Performance Analysis?

Data Source & references : Valueresearchonline, Moneycontrol, Morningstar, Freefincal & The Economictimes) (Post first published on 16-January-2021)