3 Best ELSS to Invest in 2023 – Top Performing Tax Saving Mutual Funds in India

December 1, 2022 Mutual Fund

Tax saving is an integral part of one’s wealth creation journey. Equity-Linked Saving Scheme (ELSS), also known as Tax Saving Mutual Fund, is one of the most worthy avenues for tax-saving. In this article we will be revealing PersonalFN’s list of 3 best ELSS (Tax Saving Mutual Funds) to invest in 2023.

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 and come with a mandatory lock-in period of 3 years along with tax benefits.

These funds 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

AUM data as of October 31, 2022
(Source: ACE MF) 

Why prefer ELSS over other tax-saving instruments?

Investing in ELSS offers you 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 other tax-saving instruments.

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

ELSS has the lowest lock-in period (3 years) compared to other tax-saving instruments. National Savings Certificate (NSC) and tax-saving FD both have a lock-in period of 5 years; Public Provident Fund (PPF) is locked-in for 15 years, while 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.

Top stock holdings of ELSS

Data as of October 31, 2022
(Source: ACE MF) 

Who should invest in ELSS?

Even though ELSS has various benefits, it may not be suitable for all types of investors. Being equity-oriented, ELSS have high return potential, but at the same time, they are susceptible to market volatility. The returns on ELSS are not fixed and will depend on how the market performs. Thus, invest in ELSS only if you 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.

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, you may have to hold on to your investment beyond the mandatory lock-in period.

Why invest only in best ELSS?

With a plethora of choices available in the ELSS mutual fund category, you need to analyse the fund’s performance carefully before investing. Remember that under ELSS the lock-in is three years. Thus, if you decide on a not-so-worthy fund, you will have to bear the cost of underperformance for the entire period.

[Read: How to Select the Best ELSS for Tax-Saving in 2022]

The performance of ELSS funds can vary wildly over the years. A top ELSS fund in one period may not necessarily be the best ELSS fund for the next period. Therefore, it would be imprudent to select ELSS by focusing on its popularity or short-term performance. Prefer only best ELSS that have the potential to perform well across bull and bear market phases and have the ability to reward investors with reasonable risk-adjusted returns.

How to invest in ELSS?

Opt for the SIP route to invest regularly and systematically when you invest in tax saving mutual funds. SIP helps to reduce the shocks of a volatile equity market vide rupee-cost averaging and, at the same time, helps you compound wealth over a long period. 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 you invest in ELSS, prefer the Direct Plan over the Regular Plan. The lower expense ratio of a Direct Plan can help you yield better returns over the long run.

Which are the best ELSS Mutual Funds to invest in 2023?

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 3 best ELSS to invest in 2023 using our proprietary SMART Score Matrix. We select mutual funds on the basis of 5 variable tests, viz. Systems and Process, Market cycle performance, Asset management style, Risk-reward ratios and Performance Track Record. So, each fund recommended by PersonalFN is identified through our stringent process, where they are tested on these five essential parameters.

This matrix is specially developed by the in-house research team at PersonalFN, and we believe it’s one of the finest and most reliable fund selection methodologies in the industry today.

Why? Because it has shown successful results over time! Identifying Long-Term Players Has Been Our Specialty Always!

Let us finally take a look at the best tax saving mutual funds to invest in 2023.

List of best ELSS to invest in 2023

Past performance is not an indicator for future returns
Data as of November 28, 2022. Direct plan – Growth option considered
(Source: ACE MF) 

Best ELSS to Invest in 2023 #1 – Canara Robeco Equity Tax Saver Fund

Canara Robeco Equity Tax Saver Fund is one of the oldest schemes in the tax-saving fund category and has a track record of nearly 30 years to its credit. The fund has registered exceptional performance over the last few years, which has helped in scaling up its performance over the long term. It has stood out in the tax-saving fund category by limiting the downside during tough market conditions and participating well in the recovery and bull run.

Fund Snapshot – Canara Robeco Equity Tax Saver Fund

Past performance is not an indicator of future returns
Portfolio data as of October 31, 2022
Returns and NAV data as of November 28, 2022. Regular Plan – Growth Option considered
(Source: ACE MF) 

Over the longer time horizon of 5 years and 7 years, Canara Robeco Equity Tax Saver Fund has beaten many of the popular category peers with a noticeable margin and delivered returns higher than the benchmark. Moreover, the fund has generated superior risk-adjusted returns for its investors.

Canara Robeco Equity Tax Saver Fund maintains a well-diversified portfolio of quality stocks with a long-term view. The nimble approach followed by the fund helps it take advantage of sector rotations during positive as well as negative market conditions and even improves its chances of riding out tough market conditions. Looking at its past trends, Canara Robeco Equity Tax Saver Fund seems to be well placed to ride the market highs and lows going forward.

Click here to read our detailed analysis on Canara Robeco Equity Tax Saver Fund.

Best ELSS to Invest in 2023 #2 – Parag Parikh Tax Saver Fund

Incepted in July 2019, Parag Parikh Tax Saver Fund is one of the latest entrants in the ELSS category. Despite having a short track record of little over three 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. It currently stands among the top quartile performers in the ELSS category and stands out in terms of risk-adjusted returns.

Fund Snapshot – Parag Parikh Tax Saver Fund

Past performance is not an indicator of future returns
Portfolio data as of October 31, 2022
Returns and NAV data as of November 28, 2022. Regular Plan – Growth Option considered
(Source: ACE MF) 

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. With an experienced fund manager at the helm, Parag Parikh Tax Saver Fund seems to be in capable hands.

Click here to read our detailed analysis on Parag Parikh Tax Saver Fund.

Best ELSS to Invest in 2023 #3 – Mirae Asset Tax Saver Fund

Launched in December 2015, Mirae Asset Tax Saver Fund has been in existence for nearly seven years. The fund has established a superior track record for itself in a short time span and has caught the attention of investors. The fund has the flexibility to invest across market capitalisation, themes, and investment styles. Accordingly, it holds a diversified portfolio of strong growth companies offering growth at a reasonable price spread across sectors.

Fund Snapshot – Mirae Asset Tax Saver Fund

Past performance is not an indicator of future returns
Portfolio data as of October 31, 2022
Returns and NAV data as of November 28, 2022. Regular Plan – Growth Option considered
(Source: ACE MF) 

Over the long-term time period of 3 years and 5 years, 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. More importantly, Mirae Asset Tax Saver Fund has achieved this feat at a reasonable risk, thus rewarding its investors with superior risk-adjusted returns.

Belonging to a process-driven fund house that follows a cautious investment approach, Mirae Asset Tax Saver Fund has benefited by investing in high growth-oriented stocks but at the right valuations. The superior stock-picking strategy has helped it identify the right stocks and outpace the market across time periods. It has been agile enough to take advantage of various investment opportunities present across segments.

Click here to read our detailed analysis on Mirae Asset Tax Saver Fund.

This completes our list of the 3 best ELSS (tax saving mutual funds) to invest in 2023. The only thing left to do now is to invest in these best ELSS and reap the benefits of wealth creation.

This article first appeared on PersonalFN here