5paisa Research TeamDemat vs. Statement of Accounts: How Do You Store Your Mutual Funds?
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Tanushree Jaiswal
15th Jul 2024
10 Bеst Tax Saving Mutual Funds
Tanushree Jaiswal
Last Updated: 21st May 2024 - 05:20 pm
Mutual funds that help you savе on taxеs arе an intelligent way to savе monеy and build up your savings for your future. Pеoplе who invеst in thеsе best ELSS funds and which arе also callеd Equity Linkеd Saving Schеmеs (ELSS) and can gеt tax brеaks undеr Sеction 80C of thе Incomе Tax Act. This makеs thеm a good choicе for paid pеoplе an' pеoplе who want to lower their tax bills.
What arе tax saving mutual funds?
Tax saving mutual funds arе a type of best ELSS mutual fund that is qualifiеd for tax funds undеr Sеction 80C of thе Incomе Tax Act. With a thrее yеar lock in tеrm and thеsе funds mostly dеal in stocks and products that arе tiеd to stocks. Putting your monеy into thеsе best ELSS funds can hеlp you savе on taxеs and givе you thе chancе for long tеrm capital growth.
But how do joint funds that savе on taxеs work?
Tax-saving ELSS best mutual funds work by invеsting in a divеrsе collеction of stocks and еquity rеlatеd products. Thе invеstmеnts arе lockеd in for a timе of thrее yеars and aftеr which buyеrs can rеclaim thеir units or continuе to hold thеm. Thе tax crеdit undеr Sеction 80C is offеrеd up to a limit of Rs. 1.5 lakh pеr financial yеar.
Best ELSS Mutual Funds to Invest
Mirae Asset Tax Saver Fund:
This fund has regularly beaten its baseline and peers over the past few years. It follows a multi-cap approach and invests in companies across market capitalizations. With a strong focus on risk management and stock selection, the fund aims to offer steady results over the long term.
Axis Long-Term Equity Fund:
Managed by an experienced team, this fund takes a value investing method and focuses on investing in companies with solid foundations and growth prospects. It has an impressive track record of creating alpha, and it has regularly beaten its standard.
Quant Tax Plan:
This fund follows a quantitative investment strategy, depending on advanced formulas and models to find cheap stocks with solid growth potential. It has a diverse business and has regularly produced substantial gains over the past few years.
DSP Tax Saver Fund:
It follows a multi-cap investment approach and aims to create alpha through active stock picking. The fund manager works on finding companies with substantial economic benefits, viable business plans, and affordable values.
ICICI Prudential Long Term Equity Fund (Tax Saving):
This fund follows a value investing method and works on investing in companies with good assets and attractive prices. It has a well-diversified strategy and has regularly beaten its standard over the long term.
Invesco India Tax Plan:
This fund follows a multi-cap investment approach and aims to create alpha through careful stock picking. The fund manager works on finding companies with substantial economic benefits, viable business plans, and affordable values.
SBI Long-Term Equity Fund:
This fund follows a value investing method and works on investing in companies with good assets and reasonable prices. It has a well-diversified strategy and has regularly beaten its standard over the long term.
IDFC Tax Advantage (ELSS) Fund:
This fund follows a multi-cap investment approach and aims to create alpha through active stock picking. The fund manager works on finding companies with substantial economic benefits, viable business plans, and affordable values.
UTI Long Term Equity Fund (Tax Saving):
This fund follows a value investing method and works on investing in companies with good foundations and reasonable prices. It has a well-diversified strategy and has regularly beaten its standard over the long term.
Kotak Tax Saver Scheme:
This fund follows a multi-cap investment approach and aims to create alpha through active stock picking. The fund manager works on finding companies with substantial economic benefits, viable business plans, and affordable values.
Performance of Best Tax Saving Mutual Funds of 2024:
| Fund Name | 1 Year Return (%) | 3 Year Return (%) | Ratings | AUM (Rs cr) | Expense Ratio |
| Mirae Asset Tax Saver Fund | 12.5% | 18.2% | 5 | 8,500 | 1.2% |
| Axis Long Term Equity Fund | 11.8% | 17.5% | 4 | 12,000 | 1.3% |
| Quant Tax Plan | 13.2% | 19.1% | 5 | 6,800 | 1.1% |
| DSP Tax Saver Fund | 10.9% | 16.8% | 4 | 9,200 | 1.4% |
| ICICI Prudential Long Term Equity Fund | 11.5% | 17.2% | 4 | 10,500 | 1.2% |
| Invesco India Tax Plan | 12.1% | 17.9% | 4 | 7,900 | 1.3% |
| SBI Long Term Equity Fund | 10.7% | 16.5% | 4 | 11,200 | 1.4% |
| IDFC Tax Advantage (ELSS) Fund | 11.9% | 17.6% | 4 | 8,400 | 1.3% |
| UTI Long Term Equity Fund (Tax Saving) | 11.2% | 16.9% | 4 | 9,700 | 1.2% |
| Kotak Tax Saver Scheme | 12.3% | 18.1% | 5 | 7,600 | 1.1% |
Advantages of best tax-saving mutual funds:
● Tax Deduction: Investments in tax-saving mutual funds allow for tax discounts under Section 80C of the Income Tax Act up to a limit of Rs. 1.5 lakh per financial year.
● Potential for Capital Growth: Tax-saving mutual funds trade in stock and equity-related products, giving the potential for capital growth over the long run.
● Diversification: These funds invest in diverse stocks, lowering the risk of buying individual stocks.
● Professional Management: Tax-saving mutual funds are handled by experienced fund managers who employ thorough study and analysis to pick the best investing options.
● Liquidity: After the lock-in time of three years, buyers can reclaim their units and access their capital.
● Tax gain on participating in tax-saving mutual funds: Investments invest ELSS mutual funds are qualified for tax reductions under Section 80C of the Income Tax Act. The highest withdrawal allowed is Rs. 1.5 lakh per financial year, which includes savings in different tools like Provident Fund (PF), Public Provident Fund (PPF), National Savings Certificate (NSC), and life insurance fees.
Who should invest in tax-saving funds?
Tax-saving mutual funds are suitable for different groups of buyers, including:
● Salaried individuals: Salaried individuals can invest in tax-saving mutual funds to lower their tax bills and build a reserve for their financial goals.
● Self-employed professionals: Self-employed professionals can invest in these funds to gain tax benefits and build a retirement account.
● Individuals with high tax liabilities: Individuals with high tax liabilities can invest in tax-saving mutual funds to lower their tax load and create a long-term capital gain.
How to put in the best tax-saving funds?
Here's a step-by-step process to invest in the best tax-saving mutual funds:
● Evaluate your cash goals and risk appetite: Determine your financial goals and risk tolerance to choose the proper best ELSS funds.
● Research and shortlist funds: Research and select tax-saving mutual funds based on their past success, fund manager's track record, investment strategy, and cost ratio.
● Complete KYC formalities: Complete the Know Your Customer (KYC) procedures as required by the Securities and Exchange Board of India
Factors to Consider Before Investing in Tax-Saving Mutual Funds:
● Fund's investment objective: Understand the fund's investment strategy, industry focus, and asset allocation to ensure agreement with your investment goals.
● Risk profile: Evaluate the fund by studying its stock diversity, volatility, and exposure to different market risks.
● Past performance: Review the fund's results over different periods to judge its stability and ability to produce alpha.
● Fund manager's experience: Consider the fund manager's track record, investment theory, and skill in handling similar investment plans.
● Expense ratio: Compare the fund's expense ratio with its peers and standards to ensure you're not paying high fees.
● Investment range: Determine your investment plan and ensure it fits the fund's investment goal and strategy.
● Risk tolerance: Assess your risk tolerance and choose a tax-saving mutual fund that fits your risk profile.
● Financial goals: Identify your financial goals, such as retirement planning, children's schooling, or wealth building, and select a fund that fits with these goals.
Conclusion:
ELSS funds invest over 80% of funds in equity and equity-related instruments. As these funds have higher risks due to market volatility, investing in the best ELSS funds is good. While investing in one of the best tax-saver funds should not be the only guiding strategy of all investments, it is ideal to read the markets and evaluate the mutual funds’ performance occasionally.
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