5 Tax Saving ELSS Funds that are High on Performance and Low on Expenses

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  • Mar 1, 2022 - 5 Tax Saving ELSS Funds that are High on Performance and Low on Expenses

5 Tax Saving ELSS Funds that are High on Performance and Low on Expenses

Mar 1, 2022

5 Tax Saving ELSS Funds that are High on Performance and Low on Expenses

Equity-Linked Saving Scheme (ELSS) is one of the most worthy avenues for tax-saving.

It also allows you to create wealth through equities. In the calendar year 2021, the ELSS category generated a 33.5% absolute return on average amid a sharp uptrend in the equity market.

Going ahead, the market conditions are expected to remain highly volatile. Therefore, it's important to set realistic expectations for your tax-saving investment.

Do note that while all ELSS that are currently available for investment will help you save tax, not all of them may have the potential to create superior wealth for you, the investor.

Accordingly, in our previous article, we explained the definitive steps to select the best ELSS for your tax-saving portfolio.

However, we understand that not everyone has the time and/or expertise to select the top-performing ELSS on their own. It involves a lot of number-crunching, and often the data may not be easily available.

That is why PersonalFN has curated a list of 5 tax-saving ELSS funds that are high on performance. And since the fund management expenses can eat into your gains, we have ensured the shortlisted funds have reasonable expense ratios.

We have selected these funds based on our stringent process. This involves analysing the schemes on a host of quantitative and qualitative parameters using PersonalFN's proprietary SMART Score Matrix.

Let's look at each of the shortlisted ELSS funds in detail...

Top Performing Tax Saving ELSS Fund #1: Mirae Asset Tax Saver Fund

Table 1: Fund Snapshot - Mirae Asset Tax Saver Fund

Launch Date 28-Dec-15
AUM Rs 10,972 cr
Expense Ratio 0.41%
Return since launch 18.60%
1-year return 13.00%
3-year return 22.40%
5-year return 18.86%
Direct Plan-Growth option considered. Returns over 1-Yr are compounded annualised.
Performance data as of February 24, 2022
Portfolio data as of January 31, 2022
(Source: ACE MF, PersonalFN Research)

Launched in December 2015, Mirae Asset Tax Saver Fund has been in existence for a little over six years. The fund has established itself in a short span of time and has caught the attention of investors.

It holds a diversified portfolio of strong growth companies available at a reasonable price with no sector bias. As of 31 January 2022, Mirae Asset Tax Saver Fund invested 75.4% of its assets in large-caps, 13.6% in mid-caps, and 9% in small-caps.

Graph 1: Top portfolio holdings of Mirae Asset Tax Saver Fund

chart

Backed by process-driven fund management that is known for its cautious investment approach and superior risk management abilities, Mirae Asset Tax Saver Fund has delivered on the returns front.

Since its inception, the fund has delivered healthy returns, growing at a CAGR of 18.6% (as of 24 February 2022).

The fund has managed to outperform its category average as well as the benchmark by a noticeable margin across time periods.

More importantly, Mirae Asset Tax Saver Fund has achieved this feat at a reasonable risk. Thus it has rewarded its investors with superior risk-adjusted returns as well.

Mirae Asset Tax Saver Fund has proven its ability to consistently generate returns for its investors and has turned out to be a prominent contender for one's tax-saving needs.

Top Performing Tax Saving ELSS Fund #2: Canara Robeco Equity Tax Saver Fund

Table 2: Fund Snapshot - Canara Robeco Equity Tax Saver Fund

Launch Date 31 March 1993
AUM Rs 3,209 cr
Expense Ratio 0.74%
Return since launch 14.60%
1-year return 13.36%
3-year return 22.85%
5-year return 18.15%
Direct Plan-Growth option considered. Returns over 1-Yr are compounded annualised.
Performance data as of February 24, 2022
Portfolio data as of January 31, 2022
(Source: ACE MF, PersonalFN Research)

Canara Robeco Equity Tax Saver Fund is one of the oldest schemes in the tax-saving funds' category. Launched way back in May 1993, the fund has a track record of nearly 29 years. It has generated returns at 14.6% CAGR over this period (as of February 24, 2022).

Despite being an aggressive growth-oriented fund, the fund managers avoid taking momentum bets and focuses on quality stocks with solid growth potential in the long run.

As of 31 January 2022, the fund held 76.4% of its assets in large-caps, 17.5% in mid-caps, and just 2.7% in small-caps.

Graph 2: Top portfolio holdings of Canara Robeco Equity Tax Saver Fund

chart

Although the fund has often struggled against the benchmark in the past, it has shown a turnaround performance in the last couple of years.

Canara Robeco Equity Tax Saver Fund now stands strong among the top quartile performers in the ELSS category. It has rewarded its long-term investors with superior risk-adjusted returns.

The sound risk management techniques followed at the fund house have helped the fund to do well across market cycles in the past.

Canara Robeco Equity Tax Saver Fund seems well placed to ride the market highs and lows going forward.

Top Performing Tax Saving ELSS Fund #3: Axis Long Term Equity Fund

Table 3: Fund Snapshot - Axis Long Term Equity Fund

Launch Date 29 December 2009
AUM Rs 32,136 cr
Expense Ratio 0.76%
Return since launch 16.60%
1-year return 5.94%
3-year return 17.71%
5-year return 15.57%
Direct Plan-Growth option considered. Returns over 1-Yr are compounded annualised.
Performance data as of February 24, 2022
Portfolio data as of January 31, 2022
(Source: ACE MF, PersonalFN Research)

Launched over a decade back in December 2009, Axis Long Term Equity Fund has showcased impressive performance since its launch and rewarded its investors by generating significant alpha.

Since its inception, Axis Long Term Equity Fund has recorded growth at a CAGR of 16.6% (as of 24 February 2022).

The fund's superior performance helped it gain popularity in no time and even got it the tag of the largest tax-saving fund. The fund's corpus has expanded to Rs 32,136 crore, the largest in the category.

Even though the fund has trailed the benchmark and some of its peers in the last 1-year and 2-year period, its long-term record is encouraging.

Graph 3: Top portfolio holdings of Axis Long Term Equity Fund

chart

Axis Long Term Equity Fund seeks opportunities predominantly in large-caps with a significant allocation to mid-caps selected through the bottom-up stock picking approach. As of 31 January 2022, Axis Long Term Equity Fund held 77.3% of its assets in large-caps, 17.3% in mid-caps, and a marginal allocation of 3.5% in small-caps.

The fund's emphasis on picking high-quality stocks having superior growth potential has resulted in healthy returns across market cycles in the past. It has a strong potential of delivering sound returns in the future as well.

Top Performing Tax Saving ELSS Fund #4: DSP Tax Saver Fund

Table 4: Fund Snapshot - DSPTax Saver Fund

Launch Date 18 January 2007
AUM Rs 9,856 Crore
Expense Ratio 0.87%
Return since launch 14.30%
1-year return 14.99%
3-year return 20.69%
5-year return 14.84%
Direct Plan-Growth option considered. Returns over 1-Yr are compounded annualised.
Performance data as of February 24, 2022
Portfolio data as of January 31, 2022
(Source: ACE MF, PersonalFN Research)

Launched in January 2007, DSP Tax Saver Fund is an established name in the ELSS funds category. Since its inception, the fund has grown at a CAGR of 14.3% (as of 24 February 2022).

The fund invests in a well-diversified portfolio of stocks spread across large-cap, mid-cap, and small-cap segments. It seeks to invest predominantly in the best ideas across established and emerging businesses to provide a combination of growth and stability.

As of 31 January 2022, DSP Tax Saver Fund held an exposure of 65.2% in large-caps, 21% in mid-caps, and, 12.9% in small-caps.

Graph 4: Top portfolio holdings of DSP Tax Saver Fund

chart

DSP Tax Saver Fund uses a blend of investment styles and invests across the market cap range to make the portfolio durable in the long term, across market cycles.

The fund is agile in its approach, which enables it to take advantage of various investment opportunities present across market caps and sectors.

The fund does not resist churning the portfolio to capitalise on the available opportunities. This strategy has enabled the fund to reward investors handsomely over longer time periods.

The fund has fared well in terms of risk-adjusted returns and has proven its ability to perform well across market conditions.

Top Performing Tax Saving ELSS Fund #5: BOI AXA Tax Advantage Fund

Table 5: Fund Snapshot - BOI AXA Tax Advantage Fund

Launch Date 25 February 2009
AUM Rs 546 cr
Expense Ratio 1.52%
Return since launch 18.43%
1-year return 16.34%
3-year return 26.27%
5-year return 18.50%
Direct Plan-Growth option considered. Returns over 1-Yr are compounded annualised.
Performance data as of February 24, 2022
Portfolio data as of January 31, 2022
(Source: ACE MF, PersonalFN Research)

BOI AXA Tax Advantage Fund is a lesser-known ELSS with over a decade of track record. The fund has recorded outstanding performance in the last few years which has boosted its returns over the long term.

It now stands among the top quartile performers in the ELSS category across time frames considered.

Graph 5: Top portfolio holdings of BOI AXA Tax Advantage Fund

chart

BOI AXA Tax Advantage Fund invests predominantly in stocks of high-growth companies having sustainable business models and potential for long-term capital appreciation.

As of 31 January 2022, the fund held 47.2% in large-caps, 34.7% in mid-caps, and 13.8% in small-caps. The fund's performance during bull market phases stands out, while it has also done reasonably well during bearish phases.

BOI AXA Tax Advantage Fund maintains a well-diversified portfolio of stocks spread across sectors and market caps and has been agile enough to capitalise on various opportunities present in the market. This has helped the fund to minimise the risk and reward investors with superior risk-adjusted returns.

Thus, it's a worthy contender for one's tax-saving portfolio.

To conclude...

Before you decide to invest in any of these funds, do note that past returns are not indicative of how the fund will perform in the future.

Thus, invest in ELSS only if you can bear short-term volatility in the equity market, have a high-risk appetite, and have an investment time horizon of at least 3-5 years.

Considering the long-term growth prospect of the Indian equity market looks positive, ELSS can be a suitable choice for your tax-saving needs as well as earn inflation-beating returns in the long run.

Finally, when you invest in ELSS, prefer the Direct Plan over the Regular Plan. The lower expense ratio of a Direct Plan can help you yield better returns over the long run.

Happy Investing!

Disclaimer: This article has been authored by PersonalFN exclusively for Equitymaster.com. PersonalFN is a Mumbai-based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinions on investing.

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