How to invest in ELSS
Equity Linked Saving Schemes or the ELSS are mutual funds that invest predominantly in equity and equity-linked products. These funds offer tax benefits up to Rs 1.5 lakhs to an individual under section 80C of the Income Tax Act and come with a lock-in period of three years. The scheme, over time, has become one of the most sought-after investment instruments among the young crowd who are looking to invest with a long-term horizon of 5-7 years.
Before opting to invest in any ELSS scheme, an investor should ideally compute how much investment is required to utilize tax benefits of Rs 1.5 lakhs. Some of the best tax saving mutual funds are detailed as under:
- Aditya Birla SL Tax Relief 96 – One of the prominent funds in the category, the fund follows a multi-cap strategy with around 2/3rd exposure to large-cap segment and remainder in small and mid-cap space. The fund seeks to invest in companies that are fundamentally sound and are available at a discount from its intrinsic value. Also, the fund manager seeks to maintain a balanced portfolio as reflected in beta close to 1. This indicates that the fund is not carried away with market distress and returns are purely generated by stock selection. The fund is fairly concentrated with around 50 holdings and has a decent risk-reward profile when compared to its peers. The fund is ranked 2 by CRISIL for the quarter ended December 2017 and is rated five-star by Morningstar. Ajay Garg is the fund manager managing the fund since October 2006
- Franklin India Tax Shield – An established fund within the category, the fund has maintained a large-cap bias over time and has been able to consistently outperform its benchmark in 12 of the last 15 years. The fund’s consistent performance adds up to handsome returns over the long-term. Nearly three-fourths allocation to large-cap has been able to shield the fund from any meltdown in the economy or capital market. The fund tends to avoid momentum stocks and stick to its bottom-up fundamentals-based investing. The fund is ranked 4 by CRISIL for the quarter ended December 2017 and is rated four-star by Morningstar. Lakshmikanth Reddy and R Janakiraman jointly manage the fund since May 2016.
- Reliance Tax Saver Fund – The fund has been consistently beating its benchmark and category over the multi-trailing time period and follows a blend of growth and value investing. The fund follows fundamental valuation investing whereby the companies in which the fund is invested is at the beginning of their earnings growth cycle thus resulting in attractive valuation as measured with forward-looking cash flow metrics and prospective earnings. With sizeable allocation to large-cap, the fund manager ensures that the fund does not react adversely to market turbulence. With moderate allocation to small ad mid-cap space, the standard deviation remains moderate. The scheme is ranked 3 in ELSS category by CRISIL for the quarter ended December 2017 and is rated three-star by morning star. Ashwani Kumar has been managing the fund since September 2005.