4 Best ELSS for 2024 – Top Performing Tax Saving Mutual Funds in India

December 14, 2023 Mutual Fund

Tax saving is an integral part of one’s wealth creation journey. Equity-Linked Saving Scheme (ELSS) , also known as a Tax Saving Mutual Fund, is one of the most worthy avenues for tax saving. These mutual funds offer investors an opportunity to create wealth through equities and, at the same time, enables them to save tax.

In this article we will reveal PersonalFN’s list of the 4 best ELSS (Tax Saving Mutual Funds) for 2024.

What is ELSS?

SEBI defines ELSS (Tax Saving Mutual Funds) as equity-oriented mutual funds that invest a minimum of 80% of their total assets in equity and equity-related instruments. These funds come with a mandatory lock-in period of 3 years, along with tax benefits.

ELSS have the flexibility to invest across market capitalisation and sectors. Accordingly, most ELSS hold a diversified portfolio and are usually market cap and sector agnostic. ELSS may follow the growth style or value style of investing or a combination of both.

Popular ELSS in India

The securities quoted are for illustration only and are not recommendatory.
AUM data as of November 30, 2023
(Source: ACE MF, data collated by PersonalFN) 

 Why prefer ELSS over other tax-saving instruments – Advantages of investing in ELSS

Investing in ELSS offers investors the triple advantage of tax-saving (under Section 80C of the Income Tax), wealth creation through equities, and the lowest lock-in period compared to traditional tax-saving instruments.

National Savings Certificate (NSC) and tax-saving FD both have a lock-in period of 5 years; the Public Provident Fund (PPF) is locked-in for 15 years, while the National Pension System (NPS) is locked-in till the age of 60 years.

In addition, when compared to other popular tax-saving instruments such as tax-saving FD and PPF, ELSS has the potential to reap higher returns for its investors, which makes it a worthy avenue for tax efficiency and long-term wealth creation.

Both individuals and HUFs can invest in ELSS and claim deductions under Section 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year.

Top stock holdings of ELSS

The securities quoted are for illustration only and are not recommendatory.
AUM data as of November 30, 2023
(Source: ACE MF, data collated by PersonalFN) 

Who should consider investing in ELSS?

Even though ELSS has various benefits, it may not be suitable for all types of investors. ELSS being equity-oriented have high return potential, but at the same time, they are vulnerable to market volatility. The returns on ELSS are not fixed and will depend on how the market as well as the securities in the underlying portfolio performs.

Thus, only those investors who can bear short-term volatility in the equity market, hold a high risk appetite, and have an investment time horizon of at least 3-5 years can consider investing in ELSS.

Risk-averse investors should ideally avoid investing in ELSS and instead consider relatively safer tax-saving instruments such as PPF.

Bear in mind that investments in equities take time to grow and generate meaningful returns. This means that there can be short-term underperformance. As a result, investors may have to hold on to the investment beyond the mandatory lock-in period.

[Read: Why ELSS Is Your Best Choice to Build Wealth and Save Tax]

How to select the best ELSS for investment

At present, there are over 35 ELSS, or Tax Saving Mutual Funds, in India offered by various mutual fund houses. Thus, selecting the right scheme for the portfolio can be challenging.

When selecting ELSS for the portfolio, it is important to avoid making the decision based on superficial parameters such as the popularity of the scheme, its short-term track record, or the NAV of the scheme.

Instead, one should evaluate the schemes on various quantitative and qualitative parameters to narrow down those that have consistently performed well. Click here to check out the steps to select the best ELSS for tax saving.

Should individuals consider investing in ELSS under the new income tax regime?

With a view to make the new tax regime attractive for taxpayers, the government during its Union Budget 2023-24 proposed a major revamp to the income tax slab and rates under the new tax regime with a higher basic exemption limit and lower tax outgo. Accordingly, many taxpayers are expected to shift to the new tax regime.

However, for individuals who are able to fully utilise deductions under various Sections of the Income Tax Act such as 80C, 80D, and 80E, Section 24, as well as HRA and LTA, it might be beneficial to stay in the old tax regime. Such investors can invest in and avail themselves of the benefits of various tax saving instruments such as ELSS.

That said, even if one opts for the new tax regime, tax-saving instruments can form a part of one’s portfolio for wealth creation purpose, if they align with the individual’s financial needs.

Instruments such as ELSS that invest predominantly in equities can help you earn better gains and accumulate a bigger corpus for the various financial goals. However, some investors tend to withdraw their corpus when the markets turn volatile. For such investors the lock-in period can ensure that the corpus stays invested through market highs and lows to generate significant capital appreciation through equities over the long run.

How to invest in ELSS?

Individuals can invest in mutual funds offline by visiting the nearest branch of a mutual fund house or a mutual fund distributor and submitting a duly completed application form along with other relevant documents such as proof of identity, proof of address, cancelled cheque leaf, and paying the required investment amount.

Or else, individuals can choose to invest in mutual funds online from the comfort and convenience of their homes. This can be done through the official website of the AMC or through various online investment platforms that allow individuals to transact in mutual funds.

[Read: How to Invest in Mutual Funds]

Watch this video to understand how individuals can start investing in mutual funds:

When investing in ELSS prefer the SIP route to invest a small amount regularly. SIP helps to reduce the shocks of a volatile equity market vide rupee-cost averaging and, at the same time, helps investors compound wealth over the long term. But remember that in the case of investment in ELSS via SIP, each instalment will be locked-in for a period of 3 years.

[Read:  5 Key Benefits of Investing in Mutual Funds via SIP]

Finally, when investing in ELSS, those individuals who can manage investments on their own can consider the Direct Plan over the Regular Plan. The lower expense ratio of a Direct Plan can help investors earn better returns over the long run.

Which are the best ELSS (Tax Saving Mutual Fund) for 2024?

With nearly 40 ELSS available for investment, finding the best scheme is not exactly a cake walk. That is why we at  PersonalFN have identified 4 best ELSS for 2024 selected based on rolling returns.

List of best ELSS for 2024

Past performance is not an indicator of future returns
Data as of December 11, 2023. Direct Plan-Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

Let us finally take a look at the best ELSS (Tax Saving Mutual Funds) for 2024…

Best ELSS (Tax Saving Mutual Fund) for 2024 #1 – HDFC ELSS Tax Saver Fund

HDFC ELSS Tax Saver Fund is one of the oldest schemes in the ELSS category. Launched in March 1996, HDFC ELSS Tax Saver Fund boasts an impressive long-term performance record and has generated a remarkable CAGR of about 23.5% since its inception.

Due to its value-oriented investment approach, the fund faced a challenging phase in 2015 and then between 2018 and 2021, wherein it struggled to outpace the benchmark and several of its peers. Nonetheless, the fund exhibited a significant improvement from 2021 onwards. It now stands among the top performers in the category across time frames.

Fund Snapshot – HDFC ELSS Tax Saver Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of November 30, 2023
Returns and NAV data as of December 11, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

HDFC ELSS Tax Saver Fund aims to create a diversified portfolio spread across major industries, economic sectors, and market capitalisation that offers an acceptable risk-reward balance. The fund follows a blend of growth and value styles of investing to generate optimal returns. Furthermore, it avoids investing in momentum-driven bets, even if it results in short-term underperformance. The fund has high conviction in most of its stocks and holds them with a long-term view. This strategy enables the fund to lower the risk and reward investors with superior risk-adjusted returns in the long run.

Best ELSS (Tax Saving Mutual Fund) for 2024 #2 – Parag Parikh ELSS Tax Saver Fund

Incepted in July 2019, Parag Parikh Tax Saver Fund is one of the youngest schemes in the ELSS category. Despite having a short track record of little over four years, Parag Parikh Tax Saver Fund has grabbed investors’ attention by showcasing superior performance. The fund has stood strong against its popular peers and has managed to outperform the category average as well as the benchmark by a noticeable margin across time periods. More importantly, Parag Parikh Tax Saver Fund has achieved this feat at a reasonable risk.

Fund Snapshot – Parag Parikh ELSS Tax Saver Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of November 30, 2023
Returns and NAV data as of December 11, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Parag Parikh Tax Saver Fund has the flexibility to invest across market caps and sectors. Guided by the principles of value investing, Parag Parikh Tax Saver Fund avoids momentum bets and focuses on fundamentally sound, low-debt businesses available at reasonable valuations.

The fund manager does not compromise on the risk aspects to generate higher returns but maintains a diversified portfolio of quality stocks with a long-term view. This strategy of the fund house has enabled it to keep the risk under control and perform well even in uncertain market conditions.

Best ELSS (Tax Saving Mutual Fund) for 2024 #3 – DSP ELSS Tax Saver Fund

Launched in January 2007, DSP Tax Saver Fund is an established name in the ELSS category. The fund has delivered market-beating returns and stands among the above-average performers across various time periods. The volatility registered by DSP Tax Saver Fund is nearly in line with the benchmark and the category average. Meanwhile, its risk-adjusted returns are ahead of the category average as well as the benchmark.

DSP Tax Saver Fund uses a blend of growth drivers and valuation metrics to determine the attractiveness of the stocks. It invests predominantly in stocks with strong business fundamentals and growth prospects and the remaining in companies having potential for valuation re-ratings and those available at deep values.

Fund Snapshot – DSP ELSS Tax Saver Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of November 30, 2023
Returns and NAV data as of December 11, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

While DSP Tax Saver Fund is not among the best during bearish phases, its performance during bull market phases is commendable and it has the potential to do well over complete market cycles. The fund maintains a well-diversified portfolio and is agile enough to take advantage of various investment opportunities. The fund managers have done well to keep volatility at a reasonable level and have managed to deliver on the returns front.

Best ELSS (Tax Saving Mutual Fund) for 2024 #4 – SBI Long Term Equity Fund

Incepted nearly 30 years ago, in March 1993, SBI Long Term Equity Fund is one of the oldest and most popular schemes in the ELSS category. The fund witnessed a prolonged dull phase between 2016 and 2020 wherein it stood among the bottom quartile performers. However, the fund has shown a remarkable recovery in the last few years to stand strong among its peers.

The recent superior performance has helped improve its returns over the short to medium time frames. Meanwhile, the fund has witnessed a reasonable level of volatility compared to the benchmark and the category average, and has managed to generate superior risk-adjusted returns.

Fund Snapshot – SBI Long Term Equity Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of November 30, 2023
Returns and NAV data as of December 11, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

SBI Long Term Equity Fund aims to invest across the market cap to benefit from diversification. The fund focuses on securities with a high margin of safety. It also lays emphasis on sectoral themes that are expected to grow over the medium to long term. Backed by an experienced fund management team with a focus on quality, high-growth stocks across sectors, the fund has the potential to perform well in the future as well.

​This completes our list of the 4 best ELSS (Tax Saving Mutual Funds) for 2024. By investing in the best ELSS, investors can potentially multiply their wealth and accomplish the envisioned financial goals.

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Note: This write-up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully before investing.

This article first appeared on PersonalFN here