Best ELSS or tax saving mutual funds to invest in 2019

Many mutual fund investors are hunting for the best Equity Linked Saving Scheme or ELSSs to save taxes under Section 80C of the Income Tax Act.

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It is the beginning of the financial year, and this is the best time to start your tax-saving investments. And you know an Equity Linked Saving Scheme (ELSS) or tax saving/planning mutual fund scheme is the best way to save taxes. Investments in ELSS funds qualify for tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Go ahead and start your Systematic Investment Plan in an ELSS right away.

To make your task of choosing the right tax saving mutual funds easy, we have put together a bunch of schemes you may consider investing to save taxes this year.

Here are a few pointers before you proceed: one, do not invest in ELSS just because they have the potential to offer superior returns over a long period. You should invest in ELSS only if you have the risk appetite to invest in an equity scheme. Equity, as you would know, is risky; it can also be volatile in the short term. Of course, it has the potential to offer superior returns over a long period. However, that alone need not be your criteria to invest in ELSSs.

If you don’t have the risk appetite, do not invest in them. Just remind yourself that they invest mostly in stocks. Sacrifice those extra returns and be happy with the traditional favourites like Public Provident Fund (PPF), 5-year bank deposit, and so on.

Two, you must have heard the sales pitch that ELSS funds have the shortest mandatory lock-in period of three years among the tax-saving investment options available under Section 80C. Yes, tax saving mutual funds have the mandatory lock-in period of only three years. However, that doesn’t mean you should invest in them with a horizon of just three years in mind.

Since they are essentially equity mutual fund schemes, you should invest in them with an investment horizon of at least five to seven years.

Finally, include ELSS in your overall financial plan. They are ideal to meet your long-term financial goals. You need not rush to redeem them as soon as they complete the mandatory lock-in period of three years. You may hold on to these schemes as long as they are performing well.

If you still qualify to invest in ELSS funds but don’t know which schemes to choose, here is help. Here are our recommended Equity Linked Saving Schemes or tax saving mutual funds to invest in 2019.

Best tax saving mutual funds to invest in 2019
Motilal Oswal Long Term Equity Fund
Aditya Birla Sun Life Tax Relief 96
L&T Tax Advantage
Invesco India Tax Plan
Axis Long Term Equity Fund
Mirae Asset Tax Saver
DSP Tax Saver
Principal Tax Savings Fund

We will update you on the performance of these schemes on a regular basis. If you want to know about the methodology employed to choose these schemes, please go through it below:

Methodology: Mutual Funds has employed the following parameters for shortlisting the Equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)


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