When investors put their money in a tax-saving product, they are usually concerned only with the amount of tax they will save. Ideally, they should also pay attention to the returns that these tax-saving investments will yield. ELSS funds score highly on this count. ELSS is one of the instruments under Section 80C that takes 100% exposure to equities.Hence, along with tax saving, it also offers the benefit of wealth creation. The ELSS category has given an average return of 43.48% over the past one year and 22.99% over three years.The higher returns in ELSS funds will, of course, come with higher volatility.
Conservative investors should, however, remember that the risk in equities declines as your investment horizon increases. If you are anyway going to have your money locked up for three years, you may as well invest at least a part of your taxsaving portfolio in an equity-based instrument like ELSS. The returns will be higher, and the interim volatility won't matter due to the lock-in.Pothen suggests that investors keen on wealth creation should leave their money invested in an ELSS fund even after the mandatory threeyear lock-in so as to earn optimal re turns from it. The risk of making a loss in equities becomes very small if you stay invested for 5-7 years.
The three-year lock-in also allows fund managers do a better job.
CHOOSE THE RIGHT FUND
Before investing in an ELSS fund, check its track record. Compare its returns over the short (six-month and one-year), medium (three-year) and long-term (five-year) horizons vis-a-vis its benchmark and the category average. Ensure that the fund has been ahead over all or most of these time horizons.
Besides high returns, look for consistency.
Avoid making a lump sum investment in ELSS funds. If the market is at a high level and it falls right after you invest--the sort of conditions that prevail today--you will see massive erosion in your portfolio value.Instead, use the SIP approach.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
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