Top 5 Tax saving Mutual Fund Schemes

Invest in these Schemes for best of Safety and Returns

Well things have changed from last year in terms of stock market performance and it’s right time to review which tax saving or ELSS (Equity linked saving schemes) should we invest in. Earlier, I used to analyze ELSS based on performance over a 5 year and 3 Year time frame. Though we normally look at a Three year return for determining which fund to invest in for tax saving purposes, I would suggest that we give some weightage to 1 year return also this time around. Because, this year had a good mix in terms of both sharp upside moves and sharp downside moves. we will have an idea of how the fund was able to withstand bouts of volatility. We are currently going through such a phase in the stock markets which makes us think of safety of our investments too. I have taken into account the Risk profile of each fund (based on Standard deviation) .

Now, Let’s have a look on the top 5 tax saving funds worth investing for purpose of claiming tax benefit under Sec. 80C of Income tax Act.

Name of the Fund Risk Rating Overall rating
SBI Magnum Taxgain 2 1
HDFC Long term Advantage Fund 1 2
HDFC Tax Saver 4 3
Birla Equity 1 4
Franklin India Taxshield 3 5

SBI Magnum Taxgain:

The True leader in its class, SBI Magnum Taxgain is No. 1 in our ranking. With Standard deviation of 22.13 it has managed to be second best in terms of safety of returns. In terms of performance it has beaten its nearest rival HDFC or any of the Other 4 Top picks by a big margin. With Avg. mkt. cap of above 27000 crore and with equity to debt mix of 88:12, the fund has Reliance Industries, JP Associates, Welspun Gujarat, Reliance Communications and L&T as its major holdings. The Top Three sector in which the fund has exposure are Energy, Financial Services and Diversified.

HDFC Long term Advantage Fund:

Well this chap has overshadowed its elder brother ” HDFC Tax saver funds” and has emerged as the star performer from the HDFC stable. Top holdings include ICICI Bank, Reliance Industries, Blue Star, SBI and Crompton Greaves. HDFC Tax saver fund has better 5 Year, 3 year and 1 Year return than this scheme. Then why Long term Advantage fund is at No. 2? Well, in the year when investors are realizing that safety of investment is as important as the return, this fund is No: 1 in terms of risk rating. That is why this fund should stand at No. 2 in our rankings. With standard deviation of 19.84 this scheme has outperformed all the others in Top 5 by a big margin. So for those who places safety as the utmost important factor, HDFC Long term Advantage fund is the best scheme to invest.

HDFC Tax Saver

Well, this fund is second best in terms of 5 year return but scores poorly on 1 year return. Moreover, the Risk rating at 4 is the major reason for it is put in 3 slot. So new filters had a impact on its ratings.

With Avg. market capitalization of Rs. 23204 crore, the fund has top holdings in Basic Engineering, Financial Services and Energy sectors. Top 5 holdings include ICICI bank, L&T, ITC, Crompton greaves and Reliance Industries.

Birla Equity

Birla Equity offers excellent returns from all parameters,but with standard deviation of 24.42, this growth comes with comparatively high risk. The fund has 9394 crore of AMC with high exposure in Engineering, Services and Financial service sectors. Top holdings include ABB, TRF, Gammon India, Welspun Gujarat and Goodyear India. Top 5 holdings constitutes 20% of its portfolio.

Franklin India Taxshield

Though this fund is slated to 5th position of our analysis, it has given a decent return and has performed with medium risk profile. It has above 35,000 crore Avg. Mkt. capitalisation and equity exposure is more than 97% of the assets. Top holdings include Reliance Industries, HDFC, L&T, ICICI Bank and Bharti Airtel. Financial Services, Technology and Energy are the top sectors where the fund is invested.

My advice would be to go for SBI Magnum tax gain for claiming tax benefits under sec. 80 C of the Income Tax Act. The fund not only provides excellent safety in terms of “Low” risk but also offers highest return on all parameters among the Top 5 schemes.
For those who want capital appreciation can go for Growth option. Those like me who are willing to get regular liquidity in form of tax free dividends, opt for Dividend Payment option.

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