If you are looking for a way to save tax and grow your wealth, you might want to consider investing in ELSS (equity linked savings scheme) mutual funds. ELSS funds are equity funds that invest in stocks of various companies and sectors. They offer tax benefits under Section 80C of the Income Tax Act, which allows you to claim a deduction of up to Rs 1.5 lakh on your investments every financial year. ELSS funds also have the shortest lock-in period of three years among all the tax saving options, which means you can access your money sooner than other instruments like PPF or NSC.
Best ELSS Mutual Funds to Invest in 2023 (Tax Saving)
However, ELSS funds are not risk-free. They are subject to market fluctuations and may not guarantee returns. You should invest in ELSS funds only if you have a long-term horizon of at least five to seven years and can tolerate volatility. You should also diversify your portfolio across different mutual funds ELSS funds to reduce your risk and optimize your returns.
To help you choose the best ELSS funds for your tax saving and wealth creation goals, we have compiled a list of the top five ELSS funds based on their performance, consistency, and ratings. We have used the data from ET Money, a leading online platform for mutual fund investments, as of August 17, 2023. The list is sorted by the annualized returns for five years via monthly SIP (systematic investment plan).
| Fund Name | Fund Size (in Crs) | Return (p.a.) | Rating |
|---|---|---|---|
| Quant Tax Plan | 4,434 | 30.74% | 5 stars |
| Canara Robeco Equity Tax Saver Fund | 5,979 | 18.86% | 5 stars |
| Mirae Asset Tax Saver Fund | 17,419 | 19.99% | 5 stars |
| Bank of India Tax Advantage Fund | 841 | 21.89% | 4 stars |
| IDFC Tax Advantage (ELSS) Fund | 3,557 | 18.58% | 4 stars |
Quant Tax Plan
Quant Tax Plan is the best performing ELSS fund in the last five years, with an impressive annualized return of 30.74%. The fund was launched in December 1999 and has a fund size of Rs 4,434 crore as of July 2023. The fund follows a multi-cap strategy and invests in stocks across sectors and market capitalization. The fund has a high exposure to mid-cap and small-cap stocks, which makes it suitable for aggressive investors who can take higher risk for higher returns. The fund has outperformed its benchmark (Nifty 500 TRI) and category average by a wide margin in the last one, three, and five years.
The top holdings of the fund as of July 2023 are:
- HDFC Bank Ltd. (8.06%)
- Infosys Ltd. (7.96%)
- Reliance Industries Ltd. (7.76%)
- ICICI Bank Ltd. (6.83%)
- Tata Consultancy Services Ltd. (6.77%)
The fund has an expense ratio of 2.32%, which is lower than the category average of 2.41%. The fund manager is Ankit A Pande, who has been managing the fund since June 2016.
Canara Robeco Equity Tax Saver Fund
Canara Robeco Equity Tax Saver Fund is another top-performing ELSS fund with an annualized return of 18.86% in the last five years. The fund was launched in March 2009 and has a fund size of Rs 5,979 crore as of July 2023. The fund follows a large-cap oriented strategy and invests predominantly in stocks of large and established companies that have strong fundamentals and growth potential. The fund has a low exposure to mid-cap and small-cap stocks, which makes it suitable for moderate investors who can take moderate risk for moderate returns. The fund has consistently outperformed its benchmark (Nifty Large Midcap 250 TRI) and category average in the last one, three, and five years.
The top holdings of the fund as of July 2023 are:
- HDFC Bank Ltd. (9.57%)
- Infosys Ltd. (8.88%)
- ICICI Bank Ltd. (7.93%)
- Reliance Industries Ltd. (6.68%)
- State Bank of India (4%)
The fund has an expense ratio of 2%, which is lower than the category average of 2.41%. The fund managers are Shridatta Bhandwaldar and Cheenu Gupta, who have been managing the fund since July 2016 and April 2018, respectively.
Mirae Asset Tax Saver Fund
Mirae Asset Tax Saver Fund is a relatively new ELSS fund that has delivered an impressive annualized return of 19.99% in the last five years. The fund was launched in December 2015 and has a fund size of Rs 17,419 crore as of July 2023. The fund follows a multi-cap strategy and invests in stocks across sectors and market capitalization. The fund has a balanced exposure to large-cap, mid-cap, and small-cap stocks, which makes it suitable for balanced investors who can take moderate to high risk for moderate to high returns. The fund has consistently outperformed its benchmark (Nifty 200 TRI) and category average in the last one, three, and five years.
The top holdings of the fund as of July 2023 are:
- HDFC Bank Ltd. (9.08%)
- ICICI Bank Ltd. (7.64%)
- Infosys Ltd. (7.28%)
- Reliance Industries Ltd. (6.14%)
- Axis Bank Ltd. (4.67%)
The fund has an expense ratio of 1.77%, which is lower than the category average of 2.41%. The fund manager is Neelesh Surana, who has been managing the fund since its inception.
Bank of India Tax Advantage Fund
Bank of India Tax Advantage Fund is a lesser-known ELSS fund that has delivered a remarkable annualized return of 21.89% in the last five years. The fund was launched in January 2009 and has a fund size of Rs 841 crore as of July 2023. The fund follows a multi-cap strategy and invests in stocks across sectors and market capitalization. The fund has a high exposure to mid-cap and small-cap stocks, which makes it suitable for aggressive investors who can take higher risk for higher returns. The fund has outperformed its benchmark (Nifty 500 TRI) and category average by a wide margin in the last one, three, and five years.
The top holdings of the fund as of July 2023 are:
- Infosys Ltd. (8.82%)
- HDFC Bank Ltd. (8.68%)
- ICICI Bank Ltd. (7.76%)
- Reliance Industries Ltd. (6.96%)
- Tata Consultancy Services Ltd. (5%)
The fund has an expense ratio of 2.5%, which is higher than the category average of 2.41%. The fund manager is Pradeep Kumar Kesari, who has been managing the fund since January 2018.
IDFC Tax Advantage (ELSS) Fund
IDFC Tax Advantage (ELSS) Fund is another ELSS fund that has delivered a decent annualized return of 18.58% in the last five years. The fund was launched in December 2008 and has a fund size of Rs 3,557 crore as of July 2023. The fund follows a multi-cap strategy and invests in stocks across sectors and market capitalization. The fund has a balanced exposure to large-cap, mid-cap, and small-cap stocks, which makes it suitable for balanced investors who can take moderate to high risk for moderate to high returns. The fund has outperformed its benchmark (Nifty Large Midcap 250 TRI) and category average in the last one, three, and five years.
The top holdings of the fund as of July 2023 are:
- Infosys Ltd. (9.57%)
- ICICI Bank Ltd. (8%)
- HDFC Bank Ltd. (7%)
- Reliance Industries Ltd. (6%)
- State Bank of India (4%)
The fund has an expense ratio of 2%, which is lower than the category average of 2.41%. The fund manager is Daylynn Pinto, who has been managing the fund since September 2016.
Conclusion
ELSS funds are one of the best options to save tax and create wealth in the long run. However, you should choose your ELSS funds carefully based on your risk appetite, return expectations, and investment horizon. You should also diversify your portfolio across different ELSS funds to reduce your risk and optimize your returns.
We hope this article helps you to choose the best ELSS funds for your tax saving and wealth creation goals in 2023.
Happy investing! 😊
DISCLAIMER – Stock Market Investment are subject to market risks, read all scheme related documents carefully before investing
Who should invest in ELSS funds?
ELSS funds are suitable for investors who have a long-term horizon of at least five to seven years and can tolerate moderate to high risk. They are also ideal for salaried individuals and first-time investors who want to save tax and create wealth through equity exposure
How to invest in ELSS funds?
You can invest in ELSS funds the same way you invest in any other mutual fund. You can use an online platform like ET Money or HDFC Bank to choose from various ELSS fund options and start investing either as a lump sum or via SIP (systematic investment plan). SIP is a method of investing a fixed amount at regular intervals, which helps you average out the cost of purchase and reduce the impact of market fluctuations.
How much can I invest in ELSS funds?
You can invest as much as you want in ELSS funds, but you can claim tax deduction only up to Rs 1.5 lakh per financial year under Section 80C. This means that if you invest more than Rs 1.5 lakh in ELSS funds, the excess amount will not be eligible for tax benefit.
What is the benefit of compounding in ELSS funds?
Compounding is the process of earning interest on interest, which helps your money grow faster over time. ELSS funds offer the benefit of compounding, as they reinvest the dividends and capital gains earned from the equity investments. This means that your money keeps working for you even when you are not investing more.
How does SIP option work for ELSS funds?
SIP option works for ELSS funds by allowing you to invest a fixed amount every month or quarter in an ELSS fund of your choice. This helps you build a habit of saving and investing regularly and also reduces the risk of timing the market. However, you should note that each SIP installment in an ELSS fund has a separate lock-in period of three years. This means that you can redeem your SIP units only after three years from the date of investment.
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