Best ELSS Mutual funds SIPS to invest in 2017

(Last Updated On: February 22, 2017)

As the year 2016 comes to a close you will start getting mail from your finance department to submit your investment proofs. If you are still looking to make investments this post will help you as we are going to discuss my favorite list of best ELSS Mutual fund SIPs to invest in 2017.

What is an ELSS Mutual Fund

ELSS stands forEquity linked saving schemes. It is nothing but a diversified equity mutual fund scheme which comes with an additional feature of tax saving under section 80C. Essentially the amount you invest in ELSS can be adjusted against the 1.5 lac annual deduction limit. ELSS are also called tax saving mutual funds.

Features of ELSS

1. ELSS schemes come with a lock-in period of 3 years, so you cannot withdraw your money for 3 years.
2. ELSS schemes come in 2 basic options –> one is the dividend option and the other is the growth option . In dividend option, you get a periodic dividend, while in the case of growth option your money keeps on growing.
3. While you can invest as much as you want. Tax benefits will accrue only for maximum of 1.5 lacs
4. ELSS funds invest in diversified equities hence are subject to same risks as any equity mutual fund
5. Currently, most of the funds have no entry or exit load

Benefits of ELSS Schemes

1. ELSS schemes provide best in line tax benefits . ELSS schemes fall under EEE mode which means you get a tax deduction on your investment, your principal attracts no tax and capital gains also do not attract any tax.
2. With a lock-in period of 3 years, the equity oriented funds have a higher probability of giving good returns.
3.  When you invest in ELSS keep a 5 year + horizon. Equity funds do well in long run and hence your returns will better if you can show some patience
4. You can invest using SIP mode to reduce your average cost.
5. Monthly SIPs can start at as low as Rs 500 barrier to starting the investment is very low

Few things to remember before you Invest in ELSS Schemes

1. While ELSS investments are primarily for tax saving but that should not be the only purpose of  your ELSS investments. Any equity investments you make should have a long-term growth view. Which means even though locking period for your investments is only 3 years but your time horizon should always be more than 3 years. Ideal time horizon for equity investments is 5years+ and it should be the same for your ELSS investments
2. Every ELSS investment should have a financial goal assigned to the same which you will track no investment should be made without a financial goal. So assign a financial goal other than tax saving also to your ELSS investments
3. When you invest in ELSS , do not invest in lumpsum at the end of the year when you are in a hurry to submit the investment proofs but plan it through a monthly SIP through the year. SIP has multiple advantages one your money keeps getting deployed regularly throughout the year, secondly, it helps to lower your average cost of investment hence increasing return over the long term.

Top ELSS Funds to invest in 2017

Now that we have set up enough background about ELSS funds or Tax saving funds, let us dive straight into the list of best ELSS funds to invest in 2017 .

1. Birla Sun Life Tax Plan
2. DSP Black Rock Tax saver fund
3. ICICI Prudential Long Term Equity Fund (Tax Saving)-G
4. Axis Long Term Equity Fund
5. Franklin India Tax Shield-G
6. Tata India Tax Savings Scheme
7. Birla Sun Life Tax Relief 96 (G)

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  Returns of the top ELSS funds

Details of the top funds

Birla Sun Life Tax Plan

Stated objective of the scheme like most of ELSS schemes is to grow your investments and help save taxes.Birla sun life investment strategy is to have a diversified quality portfolio. It generally invests about 50 % in large cap, about 30-35 % in mid caps and rest in small caps.

As you can see in the chart below  Birla sun life tax plan has been as a superlative outperformer in last 2 years and has outperformed the benchmark index handsomely. This is a fund which has been around for more than 16 years and has its ups and downs but last few years it has given solid performance quarter after quarter.

DSP Black Rock Tax saver fund

DSP Black rock tax saver has been a top performer in last few years. The fund boasts of a total AUM of Rs 1496 crore as on3st October 2016 and has an expense ratio of 2.64%.The fund was started on 18th Jan 2007. It has deleivered approximately 14% return snce its inception till Q3 2016.

ICICI Prudential Long Term Equity Fund (Tax Saving)-G

ICICI prudential long term ewuty fund  (tax saving) has been a consistent otperformer  for many years. As on 31st october 2016 has AUM of  Rs 3745 crore and an expense ratio of 2.30%

Axis Long Term Equity Fund

Axis long term equity fund has had a little bit bad run in last 6 months or so but this does not take away anything from the fact that Axis long term equity fund is a proven strong performer over the long run. As on 31st October that total Assets under management for the fund is about Rs 10,999 crores and the expense ratio is about 1.98%.Axis long term equity fund has delivered an amazing 17%+ return since its inception.

Franklin India Tax Shield-G

Tata India Tax saving scheme

Birla Sun Life Tax Relief 96 (G)

Stated objective of the scheme is to provide long-term capital appreciation.It is an open-ended scheme which invests about 80% in equity and rest in debt. The scheme has a total AUM of Rs 2541 crore as on October 31st, 2016. It was launched on March 29, 1996. And has been a consistent performer for last so many years.

As you can see from the chart above this scheme has consistently outperformed the benchmark index

How did I arrive at this list

We have followed a standard process bodhik framework to arrive at this list. The framework has 3 big pillars.

1. Superlative consistent returns performance over long periods of time
2. Minimum assets under management of Rs 400 Crores
3. Superior performance on returns versus the risk taken. we use the standard bodhik risk-return framework for this .

Are ELSS funds  better than PPF

Traditionally PPF has been a preferred tax planning investment. It locks in your money for 15 years and provides tax deductions under section 80C.

Well ELSS can do all that PPF does and more. Here are 3 reasons why you should replace PPF with ELSS in your portfolio.

1. ELSS funds outperform PPF in terms of returns .Average annual returns on ELSS are in the range of 10-13 % while PPF returns are currently pegged at 8 %. See the graph below which explains the difference in your financial corpus if you invest all your 80 C money i.e. 1.5 lacs in ELSS versus PPF for a period of 15 years.

If you see ELSS investment over 15 years will result in a corpus of 63.1 lacs versus PPF which will be about 40.72 lacs. ELSS returns are assumed to be 12% per annum

2. ELSS investments provide higher flexibility in terms of liquidity as the lock in period is 3 years as compared to 5 years for PPF investments

If you have any questions post a comment or write to me at sarab@bodhik.com

Credits for Return charts: Valueresearch online.