Top Tax Saving Mutual Funds (ELSS): Benefits, Risks & Comparison
Tax Saving Mutual Funds are also known as Equity Linked Savings Schemes (ELSS). They represent a unique category of equity mutual funds offering tax benefits under Section 80C of the Income Tax Act. Investing in these funds can yield deductions of up to Rs. 1.5 lakh under the cumulative limit of Section 80C in a financial year.
ELSS funds come with a brief 3-year lock-in period, making them the shortest among tax-saving investments. Post this period, investors can redeem their investments as a lump sum or through a systematic withdrawal plan (SWP) based on their needs. In this blog, we will discover a list of the top tax saving mutual funds and learn more about investing in ELSS funds in India!
List of Top Tax Saving Mutual Funds
Listed below are the best ELSS mutual funds to invest in 2024:
| Fund Name | AUM (in Cr.) | 3Y CAGR (%) | Expense Ratio | 5Y CAGR (%) |
|---|---|---|---|---|
| SBI Long Term Equity Fund | ₹25,738.08 | 29.28 | 0.95 | 28.55 |
| Sundaram LT Tax Adv Fund-Sr IV | ₹24.76 | 28.34 | 1.37 | 31.63 |
| Sundaram LT Tax Adv Fund-Sr III | ₹38.22 | 28.28 | 1.37 | 31.80 |
| Quant ELSS Tax Saver Fund | ₹11,065.42 | 28.23 | 0.71 | 38.51 |
| SBI LT Advantage Fund-III | ₹76.67 | 28.12 | - | 30.87 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr IV | ₹39.50 | 27.29 | 1.24 | 31.75 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr III | ₹85.19 | 27.11 | 1.24 | 31.26 |
| Motilal Oswal ELSS Tax Saver Fund | ₹3,835.43 | 27.05 | 0.65 | 27.36 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr VI | ₹42.49 | 26.87 | 1.24 | 32.04 |
| HDFC ELSS Tax saver | ₹16,145.24 | 26.78 | 1.09 | 24.40 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the list of the best performing ELSS mutual funds is from 30th August, 2024. This data is derived from the Tickertape Mutual Funds Screener.
- Plan: Growth
- Category: Equity>Equity Linked Savings Schemes
- 3Y CAGR: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Best Tax Saving Mutual Funds
Here is a brief overview of the top ELSS mutual funds listed above.
SBI Long Term Equity Fund
The SBI Long Term Equity Fund, an ELSS mutual fund offered by SBI Mutual Fund. SBI Long Term Equity Fund is required to allocate at least 80 per cent of its assets to equity stocks. This fund provides tax benefits under Section 80C of the Indian Income Tax Act. Under this section, investments of up to Rs 1.5 lakh in eligible securities within a financial year are exempt from tax. With Rs. 25,738.08 cr. in assets under management (AUM) as of 30th August 3034, it’s a medium-sized fund within its category. The fund carries an expense ratio of 0.95%, which aligns with the industry standards. Furthermore, the fund has a 3-yr CAGR of 29.28%, and a 5-yr CAGR of 28.55%
Sundaram LT Tax Adv Fund-Sr IV
The Sundaram LT Tax Adv Fund-Sr IV aims to generate capital appreciation over a ten-year period by mainly investing in equity and equity-related instruments of micro-cap companies. It also offers potential income tax benefits to investors.The Sundaram Long Term Tax Advantage Fund Series IV has an Assets Under Management (AUM) of Rs. 24.76 cr. and achieved a Compound Annual Growth Rate (CAGR) of 31.63% over the past five years. The fund has no exit load and an expense ratio of 1.37%, and has a minimum investment requirement of Rs. 500.
Sundaram LT Tax Adv Fund-Sr III
The Sundaram Long Term Tax Advantage Fund Series III has an AUM of Rs. 38.22 cr. and the fund had a CAGR of 31.80% over the past 5 years, and a CAGR of 28.28 over the last 3 years. The fund carries no exit load and has an expense ratio of 1.37%. The minimum investment required is Rs. 500. The fund aims to generate capital appreciation over ten years by mainly investing in equity and equity-related instruments of micro-cap companies, while also offering income tax benefits.
Quant ELSS Tax Saver Fund
Quant ELSS Tax Saver has an Assets Under Management (AUM) of Rs. 11,065.42 cr. and achieved a CAGR of 36.27% over the past 5 years, and a CAGR of 28.23% over the last 3 years . The fund has no exit load and an expense ratio of 0.71%. Investors can begin with a minimum investment or SIP of Rs. 500. The fund aims to generate capital appreciation by investing primarily in a diversified portfolio of equity shares with growth potential.
SBI LT Advantage Fund-III
SBI Long Term Advantage Fund III has an Asset Under Management (AUM) of Rs. 76.67 cr. and achieved a CAGR of 30.87% over the last 5 years, and a CAGR of 28.12% over the last 3 years. The fund has no exit load or expense ratio, and has a minimum investment requirement of Rs. 5,000. The fund aims to generate capital appreciation over ten years by primarily investing in equity and equity-related instruments, while also providing an income tax benefit.
Sundaram LT Micro Cap Tax Adv Fund-Sr IV
Sundaram Long Term Micro Cap Tax Advantage Fund Series IV has an AUM of Rs. 39.50 cr., and a current Net Asset Value (NAV) of Rs. 30.07. The fund has achieved a CAGR of 31.75% over the last 5 years and a CAGR of 27.29% over the last 3 years. The fund has no exit load and an expense ratio of 1.24%. The minimum investment amount is Rs. 5,000. The fund aims to generate capital appreciation over ten years by primarily investing in equity and equity-related instruments of micro-cap companies while also offering potential tax benefits.
Sundaram LT Micro Cap Tax Adv Fund-Sr III
Sundaram Long Term Micro Cap Tax Advantage Fund Series III is an Equity-Linked Savings Scheme (ELSS) offered by Sundaram Mutual Fund. Launched on 8th August 2016, the fund has been operating for eight years and as of 30th August 2024, the fund has an AUM worth Rs. 85.19 cr. It is considered a medium-sized fund within its category. The expense ratio of the fund is 1.24%, which is relatively higher compared to many other ELSS funds. Furthermore, the fund’s 3-yr CAGR is 27.11%, and its 5-yr CAGR is 31.26%.
Motilal Oswal ELSS Tax Saver Fund
Motilal Oswal ELSS Tax Saver Fund is an Equity-Linked Savings Scheme (ELSS) from Motilal Oswal Mutual Fund, and it was launched on 26th December 2014. As of 30th August 2024, the fund manages assets worth Rs. 3,835.43 cr., making it a medium-sized fund in its category. The fund has an expense ratio of 0.65%, which is relatively lower compared to many other ELSS funds. Furthermore, the fund has a 3-yr CAGR of 27.05%, and its 5-yr CAGR is 27.36%.
Sundaram LT Micro Cap Tax Adv Fund-Sr VI
Sundaram Long Term Micro Cap Tax Advantage Fund Series VI is an Equity Linked Savings Scheme (ELSS) offered by Sundaram Mutual Fund. Launched on 23rd June 2017, the fund has been operational for over seven years. As of 30th August 2024, the fund manages assets worth Rs. 42.49 cr., making it a medium-sized fund within its category. The expense ratio of the fund stands at 1.24%, which is relatively higher compared to other ELSS funds. Furthermore, the fund has a 3-yr CAGR of 26.87%, and its 5-yr CAGR is 32.04%.
HDFC ELSS Tax saver
The HDFC ELSS Tax Saver Fund is an Equity-Linked Savings Scheme (ELSS) offered by HDFC Mutual Fund. As of 30th August 2024, the fund has an AUM of Rs. 16,145.24 cr. and it is considered a medium-sized fund within its category. The fund has an expense ratio of 1.09%, which is relatively higher compared to other ELSS funds. There is a lock-in period of 3 years and no exit load on this fund. Furthermore, the fund has a 3-yr CAGR of 26.78%, and its 5-yr CAGR is 24.40%.
How to Invest in Tax Saving Mutual Funds?
Investing in tax saving mutual funds can be a straightforward process. Here’s a guide to get you started:
- Open a demat/trading/brokerage account. Investors can open a demat account with smallcase!
- Register online at any AMC website.
- Explore different tax saving funds to figure out which one suits your investment objectives.
- Investors can use tools like the Tickertape Mutual Fund Screener to sort through these funds and explore their fundamentals and performance in the past.
- Proceed to invest by clicking on the appropriate option and specifying the amount and investment mode (SIP or Lumpsum).
- Submit your KYC details, including your PAN number and bank details, to finalise your investment.
Note: It is important to conduct thorough research and consult a financial advisor before investing in anything.
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What are Tax Saving Mutual Funds?
Equity-Linked Saving Schemes (ELSS) are also known as tax savinf mutual funds. They belong to the diversified mutual fund category. They predominantly invest in equities and equity-related assets while allocating a portion of the corpus to debt instruments.
ELSS investments are eligible for Section 80C deductions, allowing you to save up to Rs 1,50,000 annually, resulting in tax savings of up to Rs 46,800 per year. Notably, ELSS funds have the shortest mandatory lock-in period of three years among all 80C options.
How do ELSS Tax Saving Mutual Funds Work?
When an investor invests in a mutual fund, their capital joins a pool. The fund strategically invests this capital in the equity market to balance risks and returns. For instance, a fund’s asset allocation might appear as:
- Technology sector: 10.25%
- Healthcare: 15.75%
- Energy: 8.90%
- Financial services: 20.50%
- Consumer goods: 11.20%
- Real estate: 7.60%
- Industrials: 12.80%
- Utilities: 13.00%
This breakdown illustrates how funds allocate assets. ELSS schemes typically come with a 3-year lock-in period, and each SIP instalment follows the same schedule. When redeeming, you can access only unlocked units at the current NAV. To make withdrawals, you can calculate available units, submit a claim form to the mutual fund, and receive the processed amount in your account.
Who Should Invest in These Tax Saving Mutual Funds?
Individuals or HUFs aiming to save up to Rs 46,800 annually on taxes should consider investing in the best Tax Saver Mutual Funds. The best ELSS funds to invest in 2024 are suitable for those willing to accept some risk and committed to a mandatory 3-year lock-in period.
Features of Tax Saving Mutual Funds
When it comes to selecting the best tax saving mutual funds, certain key features can help you make informed investment choices. Here are the features that distinguish the top-performing tax saving mutual funds:
- Low Expense Ratio: These funds are usually cost-efficient with a low expense ratios. This means a significant portion of your investment remains invested, helping to maximise your returns.
- Well-Diversified Portfolio: A hallmark of the best tax-saving funds is a well-diversified portfolio. They invest now across various asset classes and sectors, spreading the risk and optimising returns.
- Experienced Fund Managers: Top-performing tax-saving mutual funds are helmed by experienced and killed fund managers. These managers make informed investment decisions that can enhance the fund’s performance.
- Lock-in Period: Tax saver best mutual funds have a mandatory lock-in period of three years, encouraging long-term wealth creation and reducing short-term market volatility.
- Tax Benefits: As per Section 80C of the Income Tax Act, investments in these funds offer tax deductions up to a specified limit, helping you save on your tax liability.
- Robust Historical Performance: The best funds have a history of robust performance across different market cycles, showcasing their ability to navigate various market conditions.
- Transparency: Transparent reporting and disclosures ensure you have a clear understanding of the fund’s performance, portfolio holdings, and costs.
By considering these features, you can make well-informed decisions. Especially, when selecting the best tax-saving mutual funds to align with your financial goals and tax-saving needs.
Benefits of ELSS Funds in India
Investing in the best tax-saving mutual funds, also known as tax-saving mutual funds, offers several advantages that make them an attractive choice for tax-savvy investors. Here are the key benefits to consider:
- Tax Benefits: Tax-saving mutual funds provide tax deductions of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. This not only reduces your taxable income but also lowers your overall tax liability.
- Short Lock-in Period: Tax-saving mutual funds have a relatively short lock-in period of just three years. This is the shortest among all tax-saving investment options, providing liquidity and flexibility.
- Potential for High Returns: Tax-saving mutual funds primarily invest in equities, offering the potential for substantial long-term capital appreciation. They tend to generate higher returns compared to traditional tax-saving instruments.
- Professional Fund Management: Experienced fund managers manage tax saving mutual funds. These managers make informed investment decisions on your behalf. This expertise can help optimize your portfolio for maximum returns.
Comparing Tax-Saving Investment Schemes and ELSS Funds
| Investment Plans | Returns Range | Lock-in Period | Tax Implications |
| Tax Saving Mutual Funds or ELSS Funds | 15% to 18% | 3 years | Tax Deduction may happen on Income but investment is not taxable. |
| Public Provident Fund (PPF) | 7% to 8% | 15 years | Tax Deduction happens on investment, but income is not taxable. |
| National Savings Certificate | 7% to 8% | 5 years | Both investment and income are taxable. |
| National Pension System (NPS) | 8% to 10% | Till Retirement | Investment has tax deductions and income is partially taxable. |
| Tax Saving Fixed Deposits | 6% to 7% (differs by bank) | 5 years | Investment has tax deductions and income is taxed only if interest is above Rs 10,000. |
This table provides a quick overview of the various tax-saving investment options. This may help you make informed decisions based on your financial goals and preferences.
Taxation on ELSS Mutual Funds as per the Union Budget 2024-25
Tax saving mutual funds or ELSS funds are equity funds that are taxed accordingly. While investors can use an online ELSS tax calculator to calculate their taxes, being aware of these tax implications is essential for making informed financial decisions. The Union Budget for 2024-25 has made significant changes to the taxation on equity mutual funds. Here we have listed these changes, along with the revised tax rates for equity mutual funds:
Short-Term Capital Gains Tax
Any gains made when holding equity mutual funds for less than 12 months are considered short-term capital gains. The Union Budget 2024-25 increased the tax rate on these gains to 20%. The STCG tax rate was previously 15%.
Long-Term Capital Gains Tax
For equity mutual funds held for over a year, gains are classified as long-term capital gains. The new budget introduces these key changes:
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Risks of Investing in Tax Saving Mutual Funds
When seeking the best tax-saving mutual funds in 2024, be sure to assess the associated risks:
- Liquidity Risk: This pertains to the possibility of investors facing losses when redeeming their investments. Tax-saving or ELSS Plan funds come with a mandatory three-year lock-in period. During this time, investors cannot redeem or transfer their investments.
- Market Risk: This involves the chance of investors experiencing losses due to a poor-performing market. Various factors, including economic downturns, political events, and market sentiment, can negatively impact stock market prices of even the best tax saver funds.
- Equity Exposure: Tax-saving or ELSS funds must allocate a minimum of 80% of their assets to equity securities. Consequently, the fund’s portfolio is exposed to market risks.
Factors to Consider Before Investing in the Best Tax Saving Mutual Funds
Choosing the best tax saving mutual funds for investment can be a complex task. To evaluate these funds effectively, consider the following:
- Fund House Track Record: Focus on fund houses with consistent performance over a long-term horizon, preferably beyond 5 years. Outperformance against benchmarks signifies higher returns, but it’s essential to assess the fund’s stock quality and performance.
- Returns Analysis: Beyond comparing a fund’s return with its benchmark, analyse its performance against competitors. Make investment decisions based on a thorough evaluation of returns over an extended period.
- Expense Efficiency: Equity-linked savings schemes are managed by professionals with market expertise. The expense ratio indicates the cost of managing the fund. Lower expenses mean higher take-home returns.
- Portfolio Turnover: Portfolio turnover reflects how quickly the fund manager buys and sells stocks. Low turnover suggests a more conservative approach, while high turnover indicates frequent portfolio adjustments.
This ensures a well-rounded assessment of potential tax saving ELSS funds in India.
To Wrap It Up…
In conclusion, identifying the best tax-saving mutual funds for 2024 involves a comprehensive analysis of performance, risk, and financial goals. These funds offer an excellent avenue for tax-saving while potentially building wealth.
To make an informed choice, consider your investment horizon, risk appetite, and financial objectives. Keep an eye on the market trends, stay diversified, and consult with a financial advisor if needed. With the right approach, tax-saving mutual funds can play a pivotal role in your financial planning and wealth creation journey.
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Frequently Asked Questions (FAQs) on Best Tax Saving Mutual Funds
ELSS, or Equity Linked Savings Scheme, is a type of mutual fund that primarily invests in equities and provides tax benefits.
For those questioning the safety of ELSS, it’s important to understand that historically, these funds have shown potential for high returns due to their equity exposure. However, this also means they carry a certain level of risk, influenced by market fluctuations.
PPF and ELSS stand out as tax-friendly investments, but ELSS, despite its market risks, can offer higher wealth creation potential and liquidity than PPF. Investors should seek advice from financial advisors to determine if ELSS aligns with their tax planning goals.
Investors need to firstly engage with a licensed mutual fund distributor or online platform to fulfil their KYC requirements. Then, they can select their desired ELSS fund. Finally, they can determine their investment amount and choose between lump sum or SIP payment methods.
Here are some of the top ELSS funds to invest in 2024 from our educational list of top 10 tax saving mutual funds in India:
1. SBI Long Term Equity Fund
2. Sundaram LT Tax Adv Fund-Sr IV
3. Sundaram LT Tax Adv Fund-Sr III
Note: The data on this list of top 10 elss mutual funds has been taken on 30th August 2024.
