As the financial year 2021 drew to a close, investors were on the lookout for the best tax-saving options. One of the most popular choices among taxpayers is the Equity-Linked Savings Scheme (ELSS). ELSS funds offer a dual benefit of tax savings and potential long-term wealth creation. However, with numerous options available in the market, selecting the best ELSS fund can be a daunting task. In this article, we will delve into the world of ELSS funds and explore the top-performing options for 2021.
What are ELSS Funds?
ELSS funds are a type of mutual fund that invests primarily in equities and equity-related instruments. These funds are designed to provide tax benefits under Section 80C of the Income Tax Act, 1961. By investing in ELSS funds, individuals can claim a deduction of up to ₹1.5 lakhs from their taxable income, resulting in significant tax savings.
Key Features of ELSS Funds
Before we dive into the best ELSS funds for 2021, let’s take a look at some key features of these funds:
- Lock-in Period: ELSS funds have a mandatory lock-in period of three years from the date of investment. This means that investors cannot withdraw their money before the completion of three years.
- Tax Benefits: ELSS funds offer tax benefits under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to ₹1.5 lakhs from their taxable income.
- Equity Exposure: ELSS funds invest primarily in equities and equity-related instruments, making them a high-risk, high-reward investment option.
- Diversification: ELSS funds provide diversification benefits by investing in a wide range of stocks across various sectors and industries.
Top-Performing ELSS Funds for 2021
Now that we have a clear understanding of ELSS funds, let’s take a look at some of the top-performing options for 2021. Please note that the performance of these funds may vary depending on market conditions and other factors.
1. Axis Long Term Equity Fund
- Fund Manager: Jinesh Gopani
- Launch Date: December 2009
- AUM: ₹24,313 crores (as of March 2021)
- 1-Year Return: 70.31% (as of March 2021)
- 3-Year Return: 14.21% (as of March 2021)
- 5-Year Return: 13.41% (as of March 2021)
The Axis Long Term Equity Fund is a popular ELSS fund that has consistently delivered strong returns over the years. The fund has a diversified portfolio with a mix of large-cap, mid-cap, and small-cap stocks.
2. Mirae Asset Tax Saver Fund
- Fund Manager: Neelesh Surana
- Launch Date: December 2015
- AUM: ₹13,444 crores (as of March 2021)
- 1-Year Return: 73.19% (as of March 2021)
- 3-Year Return: 15.31% (as of March 2021)
- 5-Year Return: 14.51% (as of March 2021)
The Mirae Asset Tax Saver Fund is another top-performing ELSS fund that has gained popularity in recent years. The fund has a strong track record of delivering consistent returns and has a diversified portfolio with a mix of large-cap, mid-cap, and small-cap stocks.
3. DSP Tax Saver Fund
- Fund Manager: Rohit Singhania
- Launch Date: January 2007
- AUM: ₹7,444 crores (as of March 2021)
- 1-Year Return: 68.19% (as of March 2021)
- 3-Year Return: 13.41% (as of March 2021)
- 5-Year Return: 12.61% (as of March 2021)
The DSP Tax Saver Fund is a well-established ELSS fund that has been around for over a decade. The fund has a diversified portfolio with a mix of large-cap, mid-cap, and small-cap stocks and has consistently delivered strong returns over the years.
How to Choose the Best ELSS Fund
With so many ELSS funds available in the market, choosing the best one can be a daunting task. Here are some key factors to consider when selecting an ELSS fund:
- Performance: Look for funds with a strong track record of delivering consistent returns over the years.
- Fund Manager: Check the experience and track record of the fund manager.
- Portfolio: Look for funds with a diversified portfolio that includes a mix of large-cap, mid-cap, and small-cap stocks.
- Expense Ratio: Check the expense ratio of the fund, which is the fee charged by the fund house for managing the fund.
- Risk Profile: Consider your risk profile and invest in funds that align with your risk tolerance.
Conclusion
ELSS funds are a popular tax-saving option that offers a dual benefit of tax savings and potential long-term wealth creation. By investing in the best ELSS fund, individuals can claim a deduction of up to ₹1.5 lakhs from their taxable income and create wealth over the long term. In this article, we have explored the top-performing ELSS funds for 2021 and provided a comprehensive guide on how to choose the best ELSS fund. Remember to always consider your risk profile and invest in funds that align with your risk tolerance.
Disclaimer
The information provided in this article is for general information purposes only and should not be considered as investment advice. Investors should consult with a financial advisor before making any investment decisions. The performance of the funds mentioned in this article may vary depending on market conditions and other factors.
What is an ELSS Fund and How Does it Work?
An ELSS fund, also known as an Equity-Linked Savings Scheme, is a type of mutual fund that invests primarily in the stock market. It is designed to provide tax benefits to investors under Section 80C of the Income Tax Act, 1961. ELSS funds have a lock-in period of three years, during which the investor cannot withdraw their money.
The working of an ELSS fund is similar to that of any other mutual fund. The fund manager collects money from various investors and invests it in a diversified portfolio of stocks. The fund’s performance is measured by its net asset value (NAV), which is calculated daily. Investors can buy or sell units of the fund at the prevailing NAV. The returns on an ELSS fund are a combination of dividends, interest, and capital gains.
What are the Benefits of Investing in an ELSS Fund?
Investing in an ELSS fund offers several benefits, including tax savings, high potential returns, and diversification. ELSS funds are eligible for tax deductions under Section 80C, which means that investors can claim a deduction of up to Rs 1.5 lakh from their taxable income. Additionally, ELSS funds have the potential to provide higher returns over the long term, making them an attractive option for investors seeking to grow their wealth.
Another benefit of ELSS funds is that they offer diversification, which can help reduce risk. By investing in a diversified portfolio of stocks, ELSS funds can spread risk across various sectors and industries, reducing the impact of market volatility. This makes ELSS funds a relatively safer option for investors who are new to the stock market or are risk-averse.
How to Choose the Best ELSS Fund for 2021?
Choosing the best ELSS fund for 2021 requires careful consideration of several factors, including the fund’s performance, risk profile, and fees. Investors should look for funds with a strong track record of performance, a low expense ratio, and a stable fund manager. They should also consider the fund’s investment strategy and asset allocation to ensure that it aligns with their investment goals and risk tolerance.
In addition to these factors, investors should also consider the fund’s risk profile, including its beta and standard deviation. A fund with a high beta and standard deviation may be more volatile, while a fund with a low beta and standard deviation may be less volatile. Investors should also check the fund’s portfolio turnover ratio, which can indicate the fund manager’s trading activity and potential costs.
What are the Top ELSS Funds for 2021?
The top ELSS funds for 2021 include Axis Long Term Equity Fund, Mirae Asset Tax Saver Fund, and ICICI Prudential Long Term Equity Fund. These funds have a strong track record of performance, a low expense ratio, and a stable fund manager. They also have a diversified portfolio of stocks, which can help reduce risk.
Investors should note that the performance of ELSS funds can vary over time, and past performance may not be indicative of future results. Therefore, it is essential to evaluate the fund’s performance over different time periods and market conditions. Investors should also consider their investment goals, risk tolerance, and time horizon before selecting an ELSS fund.
Can I Invest in ELSS Funds Through a Systematic Investment Plan (SIP)?
Yes, investors can invest in ELSS funds through a Systematic Investment Plan (SIP). A SIP allows investors to invest a fixed amount of money at regular intervals, such as monthly or quarterly, in a mutual fund scheme. This can help reduce the impact of market volatility and timing risks, as the investment is spread out over time.
Investing in ELSS funds through a SIP can also help investors benefit from the power of compounding, as the returns are reinvested in the fund. Additionally, SIPs can help investors develop a disciplined investment approach, as they invest a fixed amount of money at regular intervals. Investors can start a SIP in an ELSS fund with a minimum investment amount, which varies from fund to fund.
What are the Tax Implications of Investing in an ELSS Fund?
The tax implications of investing in an ELSS fund are favorable, as the fund offers tax benefits under Section 80C. The investment amount is eligible for a tax deduction of up to Rs 1.5 lakh, which can help reduce the investor’s taxable income. Additionally, the returns on an ELSS fund are tax-free if the investor holds the units for more than one year.
However, investors should note that the tax implications of ELSS funds can change over time, and it is essential to consult a tax advisor or financial advisor to understand the current tax laws and regulations. Investors should also consider the tax implications of redeeming their ELSS fund units, as the gains may be subject to capital gains tax.
How to Redeem My ELSS Fund Units?
Investors can redeem their ELSS fund units after the lock-in period of three years. To redeem their units, investors can visit the website of the mutual fund company or contact their customer service. They can also redeem their units through a mobile app or by visiting a branch of the mutual fund company.
Investors should note that the redemption process may take a few days, and the units will be redeemed at the prevailing NAV. The redemption proceeds will be credited to the investor’s bank account, and the investor will receive a statement showing the redemption details. Investors should also consider the tax implications of redeeming their ELSS fund units, as the gains may be subject to capital gains tax.