Mutual Funds

Best Tax Saving (ELSS) Mutual Funds for 2024

Created on 19 Dec 2023

Wraps up in 5 Min

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Updated on 23 Feb 2024

Best Tax Saving (ELSS) Mutual Funds 2024

As tax season looms closer, think about diving into Equity Linked Savings Scheme (ELSS) funds- they're not just a smart move for growing wealth but also pack a punch when it comes to saving on taxes. These funds provide a dual advantage of potential returns and tax deductions under Section 80C of the Income Tax Act.

ELSS funds stand out due to their unique proposition, offering growth from equity along with tax benefits. 

ELSS funds might not be everyone's cup of tea. Wondering if they're not your match? Well, if you're not in the tax slab, have chosen the new income tax rules, or have maxed out the ₹1.5 lakh 80C limit, you can give this category a miss.

ELSS funds have a 3-year lock-in period- think of it like a commitment to let your money grow without interruptions. It's a government move to encourage stability in stock market investments. So, it's not a quick fix but more like planting seeds for future financial growth. 🌱💸

ELSS funds not only provide growth potential but also offer tax efficiency. Investments in these funds are eligible for deductions up to ₹1.5 lakh, reducing the tax burden and fostering wealth creation. 

Given that only a few ELSS funds have performed well, selecting the right one is essential for optimal results.

Before getting started, check out these must-reads:

  1. Everything you need to know about ELSS Mutual Fund
  2. Tax Benefits under Section 80C of the Income Tax Act

Okay, let’s start.

Selection Criteria for Optimal ELSS Funds

When it comes to picking the right ELSS fund, it's like choosing the perfect team for a game- you want to make sure they've got a winning track record. Look at stuff like how well they've performed in the past, who's steering the ship (aka fund manager), and if they stick to their investment goals.

So, in India, there are 39 ELSS funds (direct plan), and we decided to play detective and find the cream of the crop. First things first, we eyed returns. No rocket science here- historical data under 3 years was a no-go, but we welcomed some fresh faces from the past 5 years. We filtered out the champs that outshone the benchmark (Nifty 500 TRI) with a 19.8% CAGR in the last 3 years. 

Guess what? Half of the funds didn't make the cut. Then, we threw in a curveball with a volatility and risk test- you know, to see if they can handle the heat. We also looked at their risk-adjusted returns, fancy terms like the Sharpe ratio and the Sortino ratio. The list got shorter- down to just 8 funds.

But we weren't done. We wanted funds that didn't burn a hole in your pocket, so we checked if their expense ratio was less than the category average (0.89%). And voilà, only 4 funds made it to the superstar list! 

ELSS Funds with their returns, expense ratio and standard deviation.

The clear winner among these four funds was...

Parag Parikh Tax Saver Fund

About Parag Parikh Tax Saver Fund

This particular fund stood out for several reasons:

  • Solid Returns: The fund has consistently delivered good returns.
  • Low Volatility and Risk: It exhibits less volatility and risk, providing stability.
  • High Risk-Adjusted Returns: The fund offers higher risk-adjusted returns, balancing risk and reward.
  • Reasonable Expense Ratio: Maintaining a reasonable expense ratio, ensuring cost-effectiveness for investors.
  • Credible Fund House: Boasting the credibility of the fund house, adding trust to the investment choice.

Interestingly, this fund allocates about 17% to debt, one of the highest in the ELSS category, and still manages to outperform, highlighting its knack for picking quality stocks.

Parag Parikh takes a unique approach by having almost the same set of domestic stocks in both its tax saver fund and flexi cap fund. It's like they're saying, "Hey, we're pretty confident in our choices." 

But if you've already put your money in Parag Parikh's Flexi Cap fund, there's a potential 62% overlap with its ELSS. So, if you're eyeing those tax benefits and also want a slice of Parag Parikh's fund action, opting for its ELSS alone could be the way to go.

Focused on sectors like financial services, information technology, automobiles, oil, gas and consumable fuels, the fund shows a preference for the financial services sector compared to others in its category.

The top holdings include HDFC Bank Limited, Bajaj Holdings & Investment Ltd., Coal India Ltd., Axis Bank Ltd, Maharashtra Scooters Limited and ICICI Bank Ltd. 

Rolling Returns of Parag Parikh Tax Saver Fund

Details of Parag Parikh Tax Saver Fund

Why do we like this fund?

Despite having a higher allocation to debt and cash, this fund stands out as one of the best performers in its category. Parag Parikh's distinctive strategy includes a similar set of domestic stocks in both its tax saver and flexi cap funds (excluding international stocks), showcasing the fund manager's confidence in their investment choices. 

Now if you're exploring alternatives in the ELSS category, we have the next best option for you -

Mirae Asset Tax Saver Fund

While Mirae and Kotak are similar alternatives, we choose Mirae's plan due to the brand's solid reputation and our longstanding positive outlook on the fund.

About Mirae Asset Tax Saver Fund

Investors aiming for long-term financial goals can benefit from this fund, which not only has the potential for wealth growth but also aids in minimising tax obligations. The fund strategically allocates investments across various categories, maintaining a balanced approach.

The expense ratio of this fund is also low. The top 5 sectors in the fund’s portfolio comprise Banks, IT- Software, Pharmaceuticals and biotechnology, Consumer Durables and Petroleum Products.

Rolling Returns of Mirae Asset Tax Saver Fund

Details of Mirae Asset Tax Saver Fund

The Bottom Line

In a nutshell, if you're looking to save taxes while making your money work for you, the Parag Parikh Tax Saver Fund is a top contender. It's been consistently good, with low risks and some smart moves.

And hey, if you want another option that's pretty solid, Mirae Asset Tax Saver Fund is there, too. It's got a balanced strategy for long-term goals and won't cost you too much.

So, pick your money buddy wisely, plant those tax-saving seeds, and watch your financial garden grow! Happy investing, dear reader! 🌱💰

Disclaimer: The funds mentioned in this article are not a recommendation by Finology and should not be construed as such. The funds are mentioned based purely on numerical factors, and the process of selection should follow thorough research and professional advice.

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Sakshi Dhakre

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Sakshi is an adventurous spirit who enjoys both the intellectual stimulation of Finance and the sensory experiences of good food and nature’s beauty. She has a passion for delving into complex financial topics and distilling them down into easy-to-understand insights. When she's not poring over financial reports, you might find her exploring a new corner of the city, trying out new restaurants and cuisines or admiring the beauty of the night sky.

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