There are many tax saving mutual funds. All are not equally performing well. The best tax saving mutual funds are those which are giving good returns over a long period of time. In this post, we will discuss the best tax saving mutual funds you can choose to invest.
What is tax saving mutual funds
Asset Management Companies (AMC) formulate different schemes for investors. Certain schemes are meant for tax saving, which carry distinctive features. Some of them are
- These are open ended fund
- These fund is covered under section 80C of I.T. Act 1961.
- 80% of the corpus is invested in equity or equity linked instrument. Therefore tax saving mutual funds are also known as Equity Linked Saving Scheme (ELSS).
- Investment upto ₹1.5 lakh is exempted from taxable income
- Minimum investment is ₹500. There is no cap on maximum investment.
- Investment can be either through Systematic Investment Plan (SIP) or lumpsum.
- There is a mandatory lock in period of 3 years, before redeeming the investment.
- Short term capital gain tax is not applicable. Long term capital gain upto ₹1 lakh is exempted. The balance amount will be carry long term capital gain tax @10%.
8 Best tax saving mutual funds
There are around 85 tax saving mutual funds in India. Among these the following 8 can be considered the best tax saving mutual funds as in May 2023.
- Quant Tax Plan
The quant tax plan quant tax plan was launched in March 2000 by Quant Mutual Fund whose history goes back to 1996. Its schemes are meant for aggressive investors. The quant tax plan is one of the best tax saving mutual fund. It has given 1 year CAGR of 13.5% and 3 year CAGR of 43.2%. The Assets under management (AUM) is ₹3533.36 crore The scheme tracks NIFTY 500 Total Return Index, which has given a return of 14.08% in 10 years.
- Bandhan Tax Advantage (ELSS) Fund
Bandhan Bank is one of youngest and successful bank in India. Bandhan Tax Advantage Fund is from the stable of Bandhan AMC arm. It was launched in January 2013. The 1 year CAGR of the fund is 19% and 3 year CAGR is 37.7%. The regular plan has given a return of 17.04% in 10 years. The AUM is ₹4333.378 crore. The scheme tracks S&P BSE500 Total Return Index, which has given a return of 14.29% in 10 years.
- Bank of India Tax Advantage Fund
This the 3rd best tax saving mutual funds. The CAGR of Bank of India Tax Advantage Fund for 1 year is 19.5% and 30% for 3 year. The AUM is ₹695.47 crore. The scheme tracks S&P BSE 500 Total Return Index, which has given a return of 14.29% in 10 years.
- Kotak Tax Saver Fund
The direct plan of Kotak Tax Saver Fund has given 1 year CAGR of 18.9% while the 3 year CAGR is 29.5%. The AUM is ₹3400.35 crore. The scheme tracks NIFTY 500 Total Return Index, which has given a return of 14.08% in 10 years. This is one of the best tax saving mutual funds, which consistently performing well.
- DSP Tax Saver Fund
DSP BlackRock is a joint venture between 150 years old DSP Group of India and BlackRock investment firm of USA. DSP Group started stockbroking business in the 1860s and key contributor in the growth of capital market and money management in India. In 2018, DSP parted away from BlackRock. The DSP Tax Saver Fund has given 1 year CAGR of 15% and 3 year CAGR of 29.4%. The AUM is ₹10178.52 crore. The scheme tracks NIFTY 500 Total Return Index, which has given a return of 14.08% in 10 years.
- Canara Robeco Equity Tax Saver Fund
This plan is from the stable of Canara Bank AMC arm which is a joint venture with Dutch asset management firm Robeco. The direct plan of Canara Robeco Equity Tax Saver Fund has given 1 year CAGR 15.8% while 3 year CAGR is 28%. The AUM is ₹4923.681 crore. The scheme tracks S&P BSE 500 Total Return Index, which has given a return of 14.29% in 10 years.
- ICICI Prudential Long Term Equity Fund (Tax Saving)
This is one among the best tax saving mutual funds. The direct plan of ICICI Prudential Long Term Equity Fund (Tax Saving) has given 1 year CAGR of 14.1% while 3 year CAGR is 27.5%. The AUM is ₹9835.36 crore. The scheme tracks NIFTY 500 Total Return Index, which has given a return of 14.08% in 10 years.
- Tata India Tax Savings Fund
The last but not least best tax saving mutual funds is Tata India Tax Savings Fund. It has given 1 year CAGR of 15.2% and 3 year CAGR of 27.5%. The AUM is ₹3073 crore. The scheme tracks NIFTY 500 Total Return Index, which has given a return of 14.08% in 10 years.
(Data source : Association of Mutual Fund in India)
Suitability of Tax saving mutual funds
The suitability of any investment start with the purpose followed by risk appetite and the tenure for which the investor wants to stay invested.
Tax saving mutual funds give advantage of tax exemption though the investment is locked for 3 years. Investor cannot access this fund prior to this period. If your purpose is short term parking of the fund and need to redeem before 3 years, then avoid tax saving mutual fund.
As we could see from above, the return of the tax saving mutual fund is very impressive. It is possible due to aggressive investment in equity market. Therefore it carries high risk. There will be high fluctuation of value in the intermittent period. If you don’t have appetite for high risk, stay away from tax saving mutual funds.
Though lock in period is 3 year, you can expect a good return only if you maintain the investment for a long period say 5 years and above.
Therefore tax saving mutual funds are advisable if the investor has high risk appetite and willing to stay invested for about 5 years or more. If this criteria is fulfilled choose one of the best tax saving mutual funds and reap the benefits.
Major benefits of investing in Tax saving mutual funds
You can invest in these funds and get excellent benefits whether you are a salaried individual or a businessman. The benefits are
- It is open to all including senior citizens. They can take advantage of such funds to make money in the equity market and also save tax at the same time.
- As the funds get locked in for a duration of 3 years, you will be able to save money for specific events in your life and plan your investment in the proper manner.
- Lock in period is less compared to other funds like PPF, NPS etc.
- It does not have any ceiling for maximum investment and this is a suitable option for retired people as they can invest lump sum money from retirement fund into this scheme. This will help them to get better returns in the long run when compared to traditional methods of savings.
- Salaried individuals cap opt for SIP route and take double benefit of tax saving and high returns.
While investing in any of the best tax saving mutual funds, objective should not only be tax saving but earning good returns as well. The best tax saving mutual funds given are as in May 2023. Their performance, value keep changing. Therefore, consider the previous track record, rating by several agencies and advice of your financial planner before taking the investment decision. Also check whether it is still one of the best tax saving mutual funds at the time of investment.