Best Tax Saving Mutual Fund – 2013

by Hemant Beniwal on January 15, 2013

First post of this year on TFL was “Best Mutual Funds to Invest in 2013” where I listed non tax saving equity & debt Mutual Funds. There were couple of questions related to Tax Saving Mutual Fund or ELSS. So I asked Anil Kumar Kapila (He is an avid follower of TFL; and always try to help other reader by solving their personal finance queries.) to share his views on the same – I have Just added performance charts & tables. Check performance of Best Tax Saving Mutual Funds in last one year.

best tax saving mutual fund Best Tax Saving Mutual Fund   2013

Tax Saving Mutual Funds

End of the financial year is round the corner. It is the time when the salaried invest to save tax. For those investors who have not done their tax planning hardly any time is left. Eleventh hour tax planners must be now looking for tax saving instruments to park their funds to claim income tax deductions. Tax saving mutual fund is one such instrument.

Tax Saving Mutual Funds are popularly known as Equity Linked Saving Schemes (ELSS). They serve the purpose of combining tax benefits with wealth creation using equities. They are basically meant for tax saving but over the last few years investors in these funds have tremendously grown their wealth. Some ELSS funds have been top performers and consistently outperformed the sensex.

tax saving mutual funds Best Tax Saving Mutual Fund   2013Tax Saving Mutual Fund Vs Diversified Equity Fund

ELSS funds follow the same investment strategy as diversified equity funds. They invest in a portfolio of quality stocks chosen without any market capitalization or sector bias. Investment in ELSS is locked-in for a period of three years from the date of investment. Three- year lock-in period works in favor of these funds. Fund managers can take longer calls and deploy funds without the fear of premature redemption. Because of the stability of the corpus a higher proportion of assets can be deployed for mid and small caps to get superior returns.

tax saving mutual funds 2013 Best Tax Saving Mutual Fund   2013Who should invest in Tax Saving Mutual Fund ?

Investors should go for these funds only if their main aim is to save tax. ELSS funds do not allow you to book profits when markets are rising due to the lock-in period. The proposed Direct Taxes Code( DTC) is expected to do away with the tax benefits enjoyed by ELSS.

Since ELSS schemes invest in equity, over longer investment horizons, they deliver the highest long term returns among other tax saving investments. These are suitable for investors with a long investment horizon of more than five years. As these are equity linked schemes, investors should have a higher risk appetite than pure debt investors.

Best Tax Saving Mutual Fund

An optimal way to invest in tax saving mutual funds is by way of monthly SIPs. A large number of tax saver mutual funds are available in the market. Not all are equally good. One must be selective in choosing the right fund. Not more than two funds should be chosen.

Best Tax Saving Mutual Fund

1yr

3yr

5yr

10yr

Axis Long Term Equity 29.48 14.26
Canara Robeco Equity Tax Saver 28.40 10.13 6.32 25.07
Edelweiss ELSS 26.78 7.26
Franklin India Taxshield 26.98 10.38 4.71 25.81
HDFC LT Advantage 27.76 8.45 2.99 26.81
ICICI Prudential Tax Plan 31.92 9.35 4.74 28.79
IDFC Tax Advantage ELSS 33.59 9.27
L&T Tax Advantage 23.91 8.75 4.24
Quantum Tax Saving 30.84 10.72
Reliance Tax Saver 36.30 9.89 4.26
Religare Tax Plan 27.02 8.62 3.79

Year on Year performance of Tax Saving Mutual Fund Schemes

best tax saving mutual funds Best Tax Saving Mutual Fund   2013Tax Saving Mutual Fund after DTC

The issue that seems to be bothering the investors is regarding the fate of their investments in ELSS once the DTC comes in to effect. They need not worry. They should make hay while the sun shines. The tax benefit should be used as long as it is available. Once the DTC kicks in all ELSS funds will converted into diversified equity mutual funds without any lock-in period. It is possible that the portfolio construction will change when ELSS funds become regular diversified equity funds.

Tax saving mutual funds are on a death row now but they are still a good bet. ELSS is the only tax saving instrument that is pure equity oriented and has least number of years as lock-in period.

This is a guest post by Anil Kumar Kapilathe views expressed herein are the author’s personal views. The funds that are shown as Best Tax Saving Mutual Funds are 4 & 5 star rated funds from Value Research.

In case you have some questions regarding mutual Funds – feel free to ask. Also share this with your friends who are confused about choosing funds to save tax.

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{ 58 comments… read them below or add one }

1 ANIL KUMAR KAPILA

Hi Hemant
Thanks for performance tables and charts which enhance the utility of the post.

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2 Manoj

Hello Hemant and Anil,

What has happened to HDFC tax saver ? Has this fund not been performing well in the last couple of yrs? Because this fund has been one of the best over the yrs..and to not find this fund in the above mentioned list is a bit of a shame because whenever we talk about tax saving fund..HDFC tax saver comes in our mind. So my question to you is are you surprised by this fund’s performance in the recent times?

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3 santosh

I am also thinking same, how come HDFC tax saver is not mentioned in the above list. but in moneycontrol website it is gauged as average performer.

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4 Sriraksha

HDFC tax saver was very popular till about a few years back.It is an old fund,launched in 1996. But over the years it has slipped in returns and performance rankings and the other tax saving fund from the same AMC is a better performing one. That could be the reason it is not included.
The “returns since inception” is not a good indicator of performance . If a fund was a top performer during the initial years and has been performing poorly for the last few years, it would still have a decent “returns since inception” score

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5 Ritz

Hi Hemant

I agree with Manoj. HDFC Tax saver has given 30% returns since launch. It is still one of the best fund though value research has given it a rating of 3 stars.

Manoj

I thnik, all HDFC funds have not performed well in the recent rally.

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6 suraj

hello sir,
actually m new in corporate and eager to learn to learn more n more about mutual funds and the differences between all.
so i want to ask that if i start a SIP per month n after 15yr maturity i redeem the amount so will it be taxable.
if not the what will b the difference between tax saving fund n these fund if i would invest in LUMSUM as well

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7 ANIL KUMAR KAPILA

There are many categories of mutual funds and tax implications are different in different categories.

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8 dr .sai

what is your take on health insurance plans esp that by lic. giving a premium of 16000 for a 8L cover ( for two ) or starting a RD of 5000/- per month as a cover against future health needs .

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9 ANIL KUMAR KAPILA

Insurance and investment can not be mixed or compared.

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10 manoj

Respected sir,

I found this very useful, as per your kind guidance I have invested 35000 Rs in Reliance Tax Saver Fund – Gr. Can you pls. help me to know if this is a right decision or not and the tentative returns I can expect after 3 years.

Regards,
Manoj

Reply

11 ANIL KUMAR KAPILA

It is not possible to predict future returns of any fund.

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12 Rajiv

I feel that HDFC Tax saver should have been also added into your analysis. This is one of the best tax saver funds with a consistent performance. I was surprised by not seeing it included in your analysis.

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13 ANIL KUMAR KAPILA

It is not possible to include all the funds. Fund selection has to be based on certain criteria.

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14 param

Hi sir.
When investing in mutual fund is it necessary to read scheme information document and statment of additional information

thanks

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15 ANIL KUMAR KAPILA

No investment should be made without understanding.

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16 Pralayesh Kar

Is it right that every SIP installment in ELSS is locked for 3 years? Say, I am doing a SIP for 5 year in a ELSS, whether my 40th installment will be locked for another 3 year? On that way I can not withdraw my money in a single shot.

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17 ANIL KUMAR KAPILA

You are right.

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18 Tarun

Hi Sir,

I just want to know in which tax saving mutual fund i should invest. I have never invested in mutual fund before. Plesase help

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19 ANIL KUMAR KAPILA

You can select one from the table given.

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20 d.chakraborty

Hi
At first i am really sorry for this elaborate post cum question.Plz bear some patience to read till the end.
I am in a big financial fix.I am 24 yrs old, just 1.4 yrs into a IT job after grad. with a b.tech degree, annual salary around 3 .2 lakhs.I took a LIC endowment plan last yr (paid 2 premiums of 31000 each for the past 2 financial yrs) from our ‘family LIC agent’ (after a lot of persuasion from him) to start insurance and also save tax (hate that decision of mine).I was a novice in personal finance then (now little literate).The plan is for 30 yrs with sum assured 10 lakhs.
Recently, i came across a blog where the disadvantages of endowment plan was enunciated stating the effective return as around 5-6%.They wrote that a good mix of a term insurance (rs 14000) and ELSS investment (rest rs 17000) of this 31000 per yr would fetch much higher returns (securing my nominees by the term insurance and also riding the market using ELSS MFs).
Now, i feel like i have committed a huge mistake and would be even making it worse by continuing this plan for the next 28 yrs.
Should i stop this endowment plan and use the amount in ELSS and term insurance from the next fiscal yr (2013-14) ? I feel like losing 62000 too (saved from this meagre salary for the last 1 yr) since LIC wont pay back any penny if i stop this plan now…..whats the best way ???
Also are ELSS guaranteed to be under the tax saving category for years to come ?? Bcoz if it doesnt, then stoping this endowment plan will be a huge mistake (if i survive till the end of the term of the term insurance, my end resultant cash wudnt be much).
Need some real expert opinion on this.
Plz help me on this.
Thanks in advance.

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21 ANIL KUMAR KAPILA

It is good that you have now realized your mistake. Investment and insurance should never be mixed.Moreover you need insurance only if you have dependents. In case you are not married and you don’t have any dependents you may not require any life insurance at all. It will be better to invest your money in diversified equity mutual funds to meet your long term goals.

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22 aruna

I am new to this mutula funds investment. Let me know which one is best for to invest this year and let me know the process

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23 ANIL KUMAR KAPILA

Do your home work properly before any investment. Making investments merely based on advice is not proper.

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24 Niloy Gogoi

Nice Article.
One of the things to take care of : Past performance does not guarantee repeat future performance. So do look out for changes in fund managers etc.

It would also have been helpful to get a Annual Growth Rate for these funds from the initial year and have the SENSEX data also put into the column. For the years when there is negative return which one stays closest or drops less versus what happens when the years are good [is the amplification the same or is a fund able to lessen amplification when the returns are bad]. That would nice to see.

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25 Sunil

Dear Mr.Anil,
What is the significance of Alpha, Beta, Mean, SD while we try to analyze and Fund through ValueResearchOnline….???? Does a Investor really understand these and go ahead or he can decide based on past performance and the Fund Manager Style??

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26 ANIL KUMAR KAPILA

Value Research gives star ratings to funds which can be a good starting point.

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27 Sekar S

Hi,
I am new to this MF investment. I am 50 yrs old and my annual salary for this current Tax Year 2012-3 is Rs.945000
I have saved around 50K under Sec 80 and another 50K has to be saved. I like to deposit by choosing from your table as below.
Axis Long Term Equity - Rs.25000
Canara Robeco Equity Tax Saver – Rs.25000
Please suggest me whether I am right , I have to deposit for how many years on the above and also any other way to deposit to save further tax other than above.

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28 ANIL KUMAR KAPILA

Instead of lumpsum investment SIP mode is better.

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29 Anupam Purwar

Hello Sir,
warm regards. I have gone through your behavioural finance guide and it is very inspirational. Thank you so much for providing such a honest information on Finance behaviour science and methods of assets allocation.
Sir we are working couple in age of 30. Here I would like to mention that in January 2013 following investment in form of SIP is done by us:
SBI emerging business fund-regular plan-growth: 3000INR
Reliance equity opportunities fund-growth plan-growth options: 2000INR
HDFC mid cap opportunities fund-growth: 3000INR
Birla sun life frontline opportunities fund-growth: 2000INR
please suggest me weather I am right in above mentioned investment and what changes can be done.
thanks
Anupam

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30 ANIL KUMAR KAPILA

You are doing fine.

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31 Anupam Purwar

Thank you so much for the reply.

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32 charu

in which mutual fund one should invest

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33 ANIL KUMAR KAPILA

One should not invest in a scheme which one does not understand. One must do research before investing.

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34 sonia

are there any tax saving benefits for a single women parent. If any, please provide details.

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35 Anindita

I am looking out to invest in a Mutual Fund – SIP (Tax saving scheme) and one retirement Plan . can you suggest me anything which i can go for as i am very new into this things.

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36 ANIL KUMAR KAPILA

Please do your home work. Do not seek advice.

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37 Sheetal

I have invested in HDFC Tax saver plan (SIP)..currently 15 th installament is going on. and as per the returns are concerned they are just 3to4% Although earlier returns were quite good but as months are passing returns are decreasing .I am bit worried whether should i continue with plan or not. Lock in period is 3 years …can anybody please suggest me some solution over it..can i change my SIP plan to any other HDFC plan??

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38 pinesh

SIP return requires long time duartion……….
after 4-5 year you will find the figures like 15-20%

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39 subhash

Sir, please suggest an portfolio if an employee earns 3lakhs/year?For rebate in tax and insurance of me, i spend nearly 2500/month in LIC and 1450/month in PLI,5000/year in bajaj super saver plan,16000/year in UTI ULIP and also open an ppf account.Though i save in tax rebate but now i think i am doing mistakes due to lack of knowledge.will u guide me?Also i dont want to open any other plan but i want to switch off an plan against the new plan,please suggest.

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40 Ranjan

Hi Anil,
I am in bit dilemma. Could you please suggest that Which tax plan is better to choose between the direct plan(newly launched from 1st Jan 2013) and regular plan? When a choice is between Quantum and Religare, according to your view, which is better. Thanks in advance for the reply.

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41 Chirag

Hi Anil,
I want to save tax so I want out to invest 50000 in SBI emerging business fund-regular plan-growth in this year . Is this fund comes under ELSS?

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42 Ranjan

Hi Chirag,
SBI emerging business fund comes under Small & Mid Cap Fund Family. So it does not comes under ELSS.

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43 Sekar S

Dear Anil,

If we do investment for Tax Saving Purpose in Mutual Funds through SIP, is there any locking period in that for redemption of the same. Can you please advice.

Thanks in Advance
Sekar

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44 ANIL KUMAR KAPILA

Yes there is lock in period as mentioned in the post. Please read the post carefully before asking any question.

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45 Anusha Shashidhar

Hi, Hemanth!
Is it okay to invest in a scheme that has not rated been rated by CRISIL, if it is from a reputed fund house?

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46 Vikas

Anusha,

Rating agencies have their own parameters basis on which they rank mutual funds schemes. It may happen that a scheme rating may vary among them. CRISIL too has its own ranking methodology. If a fund is not rated by one and is there on the list by other, you should check reason for its exclusion. But if a fund is not rated by ant of the rating agency, then there need to be a strong reason. So you will have to look at the rating methodology and then can only conclude.
Although, you can use these rankings for filtering your selection its advisable to set some of your own and then see how the fund fares.

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47 VK

I have shortlisted following tax saving funds from your given list. Pl help in selecting two out of them.
Sl Fund CRISI Value Research
No Rating Rating

1 Axis Long Term Equity Rank One Five Star
2 Canara Robeco Eqt Tax Saver Reg-G Rank Two Five Star
3 BNP Paribas Tax Advantage Plan (G) Rank One Four Star
4 Religare Invesco Tax Plan (G) Rank Two Five Star

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48 Vikas

VK,

If this is the list you have finalized you can check on the basis of few parameters such as risk adjusted returns (sharpe ratio), portfolio churning etc.. to see which of these has produced better results. The portfolio of these funds will tell you where are they concentrtaed i..e which of these have more exposure to large cap and which one towards midcap. Analyzing on these will give you the two to choose.

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49 Deva

Hello sir,

Since last 2 years i am investing in HDFC Tax saver growth..The performance of this fund is below average compared with category..So should in continue my SIP in the same fund or else change to another fund
Pls advise…
Rgs,
Devendran rangasamy..

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50 Vikas

Deva,

If the fund is under performing for a long time in comparison to its peers then you can look at alternative. However do analyze the reason for underperformance and then make your decision.

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51 A SAHA

PROCEDURE TO START SIP WITHOUT ANY AGENT IN DETAIL.

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52 Vikas

A Saha,

You can visit any respective company website and you will find the detail of the process to invest.

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53 Anil

Sir

I want to invest annually 60 k in mutual tax saving funds ?

Please suggest the best one.

Thank you.

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54 Vikas

Anil,

You can consider spreading this into two funds. You can pick from the list.

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55 Girraj Sharma

Hi All,

I am 26 years old and doing investment in below SIP and funds please suggest my planning is corrret or not ?

HDFC Gold….INR 1500 from last 1 year
HDFC top 200….INR 1500 from last 1 year
DSP BR Small & Mid Cap….INR 1500 from last 1 year
LIC Money back 30k per year from last 1.6 year
HDFC Life for 7 year with 10 year locking……..24K per year 1.6 year

Can i expect approx 2 crore amount after 25 year from SIP ?

Please suggest.

Thanks
Girraj Sharma

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56 Vikas

Girraj,

You are investing almost Rs 9000 p.m. Even if a 12% return is assumed you may not reach the target amount with this fixed investment. However, your financial situation will not remain same as your income will increase. So you can enhance these contributions periodically which will allow you to reach near your target goal.

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57 Arun

How about your assessment on Best Mutual Fund – 2014 for investing?

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58 sastry

sir,
i am canara rabbco (LESS

sir,
i have canara rabaco (LESS) for the AY 2010-11 and Axis long term advantage (LESS) for the AY 2013-14.please suggest me in which fund (LESS) i have to invest for the AY 2014-15. advice me shall i invest now or wait for some time for corracton in market.
with regards
sastry

Reply

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