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 (Equity Linked Saving Scheme) 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/What is the best tax plan when investing in mutual funds?

If you are wondering how to create the best tax plan when investing in mutual funds, then you must take a look at Chapter VI A of the Income Tax Act that contains the deductions under Section 80C of the Income Tax Act,1961. According to this section (80C of the Income Tax Act), you can get a tax deduction by investing up to Rs.1.5 lakh per financial year in these tax ELSS (Equity Linked Saving Scheme) 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. These will be best suited to you if you are not too risk-averse and have a long-term investment horizon. 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 a long period of 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 a long-term investment horizon and average risk-taking capacity.

Short Lock-in period - As compared to the NSC and PPF which get locked-in for a long period, 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 and the performance of the fund managers. Fund houses with a history of consistent performance over five to ten years tend to be better options and have more experienced fund managers.

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 -

Mutual fund schemes with their five year returns are as follows --

Fund Name   
5-Year Returns   
Canara Robeco Equity Taxsaver Growth   
DSP Tax Saver Fund Growth   
Axis Long Term Equity Fund Growth   
Mirae Asset Tax Saver Fund -Regular Plan-Growth   
Aditya Birla Sun Life Tax Relief 96 Growth   
Kotak Taxsaver Fund Growth   
UTI Long Term Equity Fund – Regular Plan – Growth   
ICICI Prudential Long Term Equity Fund (Tax Saving) Growth   
Edelweiss Long Term Equity Growth   
SBI Magnum Long Term Equity Scheme Regular Growth   

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 fund schemes 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.