Over the years, mutual funds have become a popular investment choice. This is primarily because mutual funds allow you to earn potentially better returns than traditional tax-saving investment options like Fixed Deposits (FD) and Public Provident Fund (PPF). Moreover, mutual fund schemes enable you to invest as per your risk appetite. Further, specific mutual funds also give you tax exemptions up to Rs. 1.5 lakhs every year under Section 80C of the Income Tax Act, 1961. One of the most preferred tax-saving mutual funds is ELSS (Equity-Linked Savings Scheme).
The ELSS mutual funds invest your money in equity and equity-related securities of companies across different sectors. If you want the best tax-saving mutual funds, then you can invest in the ELSS category since these tax-saving instruments have a remarkably short lock-in period of three years and higher potential for better returns. ELSS funds are also ideal for long-term capital appreciation despite the 10% long-term capital gain tax imposition.
Here are some of the best tax-saving mutual funds you can evaluate for your investment:
- TATA India Tax Saving Fund: Offered by Tata Capital, this is an open-ended equity-linked mutual fund scheme. It invests a maximum of your portfolio investment in equity and equity-related securities to maximize long-term capital growth. The stocks are selected after careful fundamental research using a blend of growth and value investment approach. The stocks are analyzed on strict parameters, such as the efficiency of capital use, growth potential, liquidity, valuation, and governance. The average three-year return for this ELSS scheme is between 13-14%.
- Kotak Tax Saver Fund: This open-ended ELSS mutual fund scheme is offered by the Kotak Mahindra Bank and aims to create a diversified portfolio with majority investments in equity and related securities. The fund uses a bottom-up (identify strong companies) approach for selecting stocks across all markets. The average three-year returns of this mutual fund scheme are between 14-15%.
- Invesco India Tax Plan: Managed by Invesco Mutual Fund, this open-ended ELSS scheme enables investors to maximize their capital growth over the long term. The mutual fund portfolio is adequately diversified and majorly includes equity investments in mid-cap companies offering profitable and sustainable growth. However, the fund limits the number of stocks that you can invest in. The average three-year returns of this ELSS scheme are between 13-14%.
- IDFC Tax Advantage (ELSS Fund): This is an open-ended equity-linked mutual fund scheme offered by IDFC Mutual Fund. The ELSS scheme primarily invests your money in equity and equity-related instruments, generating better long-term returns. In some cases, these funds also invest in money market and debt securities for optimal diversification. The three-year return for this ELSS scheme is 11-12%
- Aditya Birla Sun Life Tax Relief 96 Fund: This is another ELSS scheme that offers appreciably high returns and uses a bottom-up (identify strong companies) and top-down (macro-economic trends) approach for selecting stocks. The fund is offered by Birla Sun Life Mutual Fund and predominantly invests in equity and related securities. The three-year average returns of this mutual fund are between 8-9%.
If you’re looking to find tax-saving mutual funds that fit your financial goals, you can use a well-reviewed and verified online investment app, such as Tata Capital Moneyfy App, to research, invest and track your mutual funds.