Best Tax Saving Mutual funds| North Loop Official Blog
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16 Oct 2020

Best Tax Saving Mutual funds

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Introduction -

Tax saving mutual funds in India invest in stocks of companies based on the fund’s investment objective and provide maximum exposure towards equity and equity-oriented securities. They are also known as ELSS mutual funds and have the potential to generate higher returns as compared to other tax-saving instruments. With the majority of their corpus in equity and a part in debt instruments, these tax saving mutual funds in India provide dual benefits of capital appreciation as well as tax savings.

How much tax can be saved by mutual funds?

If you are wondering how much tax can be saved by mutual funds, then you must take a look at Chapter VI A of the Income Tax Act that contains the deductions under Section 80C. According to this section, you can get a tax deduction by investing up to Rs.1.5 lakh per financial year in these tax ELSS mutual funds. However, to claim the tax benefits, the investments get subject to a lock-in period of 3 years. Also, those exceeding Rs.1.5 lakh cannot benefit under this section.

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Who should invest in tax ELSS mutual funds?

You can invest in ELSS mutual funds both as an individual or a HUF. While these funds can get invested in by anybody, they are best suited to those who are not too risk-averse and have long-term financial goals. ELSS funds take time to unleash their power of compounding to the fullest, and if you are in it for the long haul, you can enjoy high returns by investing in these instruments. Moreover, tax deductions of up to Rs.46,800 (on investments up to Rs.1.5 lakh) per financial year is another advantage you can get by investing in ELSS mutual funds.

Benefits of investing in Tax saving mutual fund India -

High returns - ELSS mutual funds have long-term benefits and the potential to generate higher returns as compared to other instruments. They are known to deliver average returns of 12-15% when invested for more than five years and can beat other asset classes by a wide margin. Even though they can be volatile, their benefits outweigh the volatility risks and make them popular choices of investments among investors with long-term goals and average risk-taking capacity.

Short Lock-in period - As compared to the NSC and PPF, tax saving mutual funds in India have the lowest lock-in period of only three years. That is also the reason they are one of the most liquid investment options among other tax-saving financial instruments.

How to choose the best tax saving mutual funds 2020?

Fund returns - Compare the performance of the best funds to ensure that the returns are consistent over the past years and as per your desired goals.

Fund history - Analyse the fund’s history by looking at the quality of stocks present in its portfolio. Fund houses with a history of consistent performance over five to ten years tend to be better options and give good results.

Expense ratio - Note the expense ratios of different funds. Those with a high expense ratio should ideally show either higher returns or some other benefits. If you want higher take-home returns, you can consider funds with a lower expense ratio.

Financial parameters - Use parameters like Standard Deviation, Sharpe Ratio etc. to choose funds with the optimum combination of risk and return. For example, a fund with a high Sharpe Ratio can get considered as it can offer higher returns for the additional risks taken.

Best Tax Saving Mutual Funds 2020 -

Fund names with their five year returns are as follows --

   
Fund Name   
   
5-Year Returns   
   
Canara Robeco Equity Taxsaver Growth   
   
7.78%   
   
DSP Tax Saver Fund Growth   
   
7.21%   
   
Axis Long Term Equity Fund Growth   
   
7.10%   
   
Mirae Asset Tax Saver Fund -Regular Plan-Growth   
   
6.95%   
   
Aditya Birla Sun Life Tax Relief 96 Growth   
   
6.54%   
   
Kotak Taxsaver Fund Growth   
   
6.11%   
   
UTI Long Term Equity Fund – Regular Plan – Growth   
   
5.17%   
   
ICICI Prudential Long Term Equity Fund (Tax Saving) Growth   
   
5.06%   
   
Edelweiss Long Term Equity Growth   
   
3.85%   
   
SBI Magnum Long Term Equity Scheme Regular Growth   
   
3.79%   

Parameters -

The parameters used by experts for choosing the above funds -

  • Mean rolling returns
  • Consistency in the last three years
  • Downside risk
  • Outperformance
  • Asset size

Conclusion -

You can explore different mutual fund investment options on our App and directly invest in mutual funds. We also have professional mutual fund advisors who can guide you to choose the best funds based on your risk appetite and goals.
To invest in mutual funds online, sign up with North Loop here.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.