If you were to ask a group of investors why they prefer to invest in ELSS mutual funds (equity linked savings scheme), most of them would say that they like the fact that ELSS mutual fund investments provide them tax benefits. But that is not the only advantage of ELSS investments. Because the investment is in equity only, there is a stronger chance of getting better returns on the investment. The last year might have been a little difficult, but if we go back to the returns of last 10 years or 5 years or even 3 years, equity investments have given much better returns than most other investment classes. Also, compared to other tax saving investments, an ELSS has the shortest lock in period of 3 years. But a tax saver Fixed Deposit, for instance, locks in your investment for 5 years. Finally, the savings on tax than an ELSS mutual fund provides is an added bonus.
Unlike regular mutual funds which are tagged as mid cap or large cap, there is really no way of knowing the investment flavour of an ELSS mutual fund. You need to look at the portfolio of each fund to see which stocks they are investing in.Because there are so many ELSS mutual funds available, it might get a little confusing as to which are the best ones to invest in as we get ready to close 2018. For 2019, would it be better to go with an old fund which has proven records? Or is it a better idea to put your money in a new fund which doesn’t carry the baggage of history? We have tried to include both types of ELSS mutual fundsmentioned in this list. Primarily we have looked at the portfolios, history of returns, and the portfolio management team for each fund. These are our top 5 picks for 2019.
Motilal Oswal Long Term Equity Fund Direct-Growth: This fund has been around for more than 3 years now, and has given more than 14% returns per annum since inception. This is a fund that is predominantly tilted towards giant caps and large caps (more than 70% allocation), and some allocation to mid caps (around 24%). More than a fifth of the holdings of this fund are in Infosys, HDFC Bank, and HDFC. In 2017, this fund introduced a new concept of an annual SIP. Investors have got dividends twice in 2018, and once in 2017. In August this year, Snigdha Sharma was appointed as Associate Fund Manager. She brings with her more than 10 years of experience in both Indian and US markets with names like Goldman Sachs, Fidelity International and Axis Capital. This fund ranked 2 by Crisilshould ,therefore, be a good bet for 2019.
DSP Tax Saver Direct Plan-Growth :Launched at the start of 2013, investors of this fund have got more than 15% annualized returns so far. This is also a large cap fund, with more than 70% allocated to large cap stocks. The five biggest stocks in this fund are ICICI Bank, HDFC Bank, HCL Technologies, State Bank of India and Tech Mahindra. They have been regularly announcing dividend once or twice every year from 2014 onwards. This fund is managed by Rohit Singhania, who specializes in sectors like Automobiles, Ancillaries, Metals, Infrastructure, Hotels etc. He has been with DSP Black Rock for more than a decade, and also little more than a year in HDFC Securities. Although the joined venture partners have now moved on, DSP Mutual Fund still commands a lot of respect among investors and market watchers.
Aditya Birla SL Tax Relief 96 Direct-G :Ajay Garg manages this fund which was launched in 2013. The 5-year returns of this fund are an unbelievable 20.79%, although,like almost all other funds, it hasn’t given positive 1 year returns. The portfolio of this fund looks a little different from most of the other ELSS funds we looked at. The top three allocations are for stock of Honeywell Auto, Gillette India,and Reliance India, which cover more than a fifth of the total allocation. In fact, there is no IT stock in the top 10 scrips of this fund, and only HDFC from BFSI in the top 10. Ajay Garg brings with him more than 15 years of experience and been with Birla Sun Life since 2003.
Tata India Tax Savings Fund – Direct Plan Growth:This fund has been around since 2013, and for most of these 5 years it was an above-average performer. Rupesh Patel has been managing this fund since 2015, and earlier this year he was joined by Ennettee Fernandes. Compared to the other ELSS mutual funds on this list, this fund has a slightly higher allocation of around 35% in mid-caps, while the large caps allocation is down to 55%. ICICI Bank has an inordinately high fund allocation of more than 11%, and Infosys is the only non-banking stock in the top 5 of this fund, which togetheraccounts for more than 30% of the fund. The dividends have been a little irregular on this fund, as compared to some of the other names on this list. But the dividend value has been far better than the others.
L&T Tax Adv Direct-G :Another of the funds which were launched in 2013, this ELSS mutual fund has given an average return of more than 15% in this period. The large cap allocation of this fund is the lowest among all the funds in this list, at less than 55%. But it is balanced out by 10% allocation to small caps, which is large absent in the other funds of this list. In the top 10 scrips where this fund is invested, there are some surprises like Graphite India, and Future Retail, along with Sterlite. Except for 2018, this fund has followed a twice a year schedule for giving dividends, but the amounts can be called moderate. The last dividend announced was in March 2018. One advantage of this fund is that it has had the same fund manager, Soumendra Nath Lahiri, since inception.