The tax season is upon us, and it’s time to make some smart investment decisions that can help you save tax under Section 80C of Income Tax Act, 1961. One of the best options is investing in Equity Linked Saving Schemes (ELSS) or tax-saving mutual funds that offer attractive long-term capital appreciation along with a tax benefit of up to Rs. 1.5 lakh deduction under Section 80C.
In this blog, we will discuss the top-performing tax-saving mutual fund that you should consider investing in this financial year:
What is an ELSS or Tax Saving Mutual Fund?
An Equity Linked Saving Scheme (ELSS) is a type of diversified equity mutual fund that invests primarily in equities of various companies across market capitalisations and sectors. The key aspects of ELSS are:
- It offers tax benefits under Section 80C up to Rs. 1.5 lakh deduction.
- Comes with a 3-year lock-in period.
- Tends to potentially provide higher returns in the long run compared to other fixed-income tax-saving options.
- Carries an element of risk since the fund invests mainly in equities.
In a nutshell, ELSS funds enable investors to save tax and potentially accumulate wealth simultaneously when held for the long term.
Bandhan ELSS Tax Saver Fund
Bandhan ELSS Tax Saver Fund is an Equity Linked Savings Scheme (ELSS) that aims to generate long-term capital growth from a diversified equity portfolio and enables investors to avail of a deduction from total income, as permitted under the Income Tax Act, 1961.
Key features:
- Invests in a diversified portfolio of strong growth-oriented stocks.
- Well-managed by an experienced fund management team.
- The low expense ratio.
Why invest: It is a tax saving mutual fund that may have potential for significant growth. The fund has a diversified portfolio of quality stocks picked through robust research.
Why Invest in ELSS Funds?
Here are some of the major benefits of investing in top tax-saving mutual funds:
- Dual benefit: Saves tax + potential for wealth creation.
- Flexibility: No cap on the amount one can invest, unlike other Section 80C options.
- Short lock-in: Only 3 years lock-in compared to 15 years for PPF.
- Wealth creation: ELSS funds have the potential to deliver 15-20% CAGR over the long term.
- Liquidity: Potential higher liquidity compared to 5-year tax-saving FDs.
- Low charges: Expense ratios capped at 2.25%, no entry loads.
Clearly, ELSS funds make for smart tax planning investments.
Key Factors to Consider When Investing in ELSS Funds
While ELSS funds make for an attractive tax-saving investment choice, here are some key parameters you should evaluate before selecting the right ELSS fund:
Long Term Performance
Analyse the fund’s 1-year, 3-year, and 5-year returns to assess consistency.
Portfolio Holdings
Evaluate the concentration toward top stocks and sectors. Prefer well-diversified funds.
Fund Manager Track Record
A reputed and experienced fund manager with proven capability may potentially generate better returns.
Risk Metrics
Factors like alpha, beta, and standard deviation gauge the fund’s risk orientation.
Valuation Metrics
Evaluate weighted average P/E and P/B ratios to assess the overall valuation of the portfolio.
Expense Ratio
A lower expense ratio translates into higher investor returns over the long run.
Conclusion
Invest wisely after evaluating your risk appetite, investment horizon, and post-tax returns. Moreover, have realistic return expectations of 12-15% CAGR over the long run. Here’s wishing you a happy and prosperous tax-saving season!