Best Income Tax Saving Mutual Funds

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• Dear Pankaj,
  Thank you very much for your kind reply.I want to know which will be the best option for tax saving mutual fund, ELSS of FMP?I have heard that tax saving will only applicable upto this(2011-2012) financial year.Please confirm.
  Another thing I want to know that,whether it is possible to accumulate Rs 1 cr. in 15-20 years in investing mutual funds?How much I have to invest per month and which mutual funds will serve the purpose.
  Thanking you,
  Pinaki M. Sutradhar

  • @Pinaki
    No tax benefit is available on investment in FMP.
    On tax saving mutual funds (ELSS) too, tax saving benefit is available only till 31st March, 2012 (before direct tax code comes).
    In a long term (15-20 years) investment, mutual funds can deliver 10-12% avg yearly return (if funds are chosen correctly), so if you invest around 15000 Rs per month. It should become 1 crore in 20 years.
    You should balance your portfolio in this investment. It should consists of mix of Large cap, mid cap, small cap, gold and debt based investments.
    You can start SIP in these funds for Rs 2000 per month: DSPBR Top 100 equity, Franklin India Bluechip, HDFC Equity, HDFC Growth, Fidelity India Growth, HDFC Top 200 and ICICI Pru discovery Inst I
    1000 per month can be invested into Gold ETFs per month.

    • Dear Pankaj,
      Thank you very much for your kind input.
      Thanking you,
      Pinaki M. Sutradhar

• Hi,

  I am 31 years, in bangalore working as a software engineer and have an earning around 70k per month. Last month I started investing in HDFC Top 200(2000 per month). I was considering to invest in the following:

  Midcap :
  IDFC Premier Equity Fund - Plan A - Growth or sundaram bnp paribas midcap fund

  Large Cap
  DSP BlackRock Top 100 Equity Fund - Growth or Franklin India Bluechip Fund - Growth - Growth .

  Please let me know

  1. if this is a right time to invest considering the market volatility. Should I wait for some more time berfore investing?

  2. Which of the options should I proceed with for each mid cap and large cap.
  Thanks.

  • Hi, Seemanth,
    The fact that you are investing through sips itself shows that you are on the right path.
    However, your choice of funds needs a overhaul.
    HDFC top 200 can be continued.
    In Mid cap, go for IDFC Premier Equity Fund.
    But, I do not see any reason for another Large Cap fund when you already have a sip in Hdfc top 200 fund.
    I suggest you rather go for a Diversified Equity Fund like the Fidelity Equity Fund or the DSP BR Equity Fund.
    My personal favourite would be the Pramerica Dynamic Fund.
    Best of luck,
    Regards,
    Srikanth Matrubai

  • @Seemanth
    Funds selected by you are all good.
    1. Its the right time to start a SIP. In fact, SIP can be started any time as cost of buying averages out. Markets are already pretty low so now you can get more units at less cost.
    2. Pick IDFC Premier Equity Fund in Mid/small cap and DSP Top 100 in Large cap.

    • Thanks Srikanth and Pankaj on your views....

• Hi,

  I am 29 yrs old, working in an MNC based in Pune.
  Please suggest me the best 3 tax saving SIP plans having low risk .

  Please response via email:rakeshranjan1982@gmail.com

  Thanks.

  • @Rakesh
    All tax saving mutual funds are equity linked and carry a good amount of risk.
    If markets perform badly, returns will also suffer. There is no guarantee on returns.

    However based on their past performance, following funds are good for SIP investment: Canara Robeco Equity Tax Saver, HDFC Taxsaver, Franklin India Taxshield, DSPBR Tax Saver and Fidelity Tax Advantage.

    • @Pankaj..Thanks for your valuable feedback.
      Is any other investment plan where risk is low and I can show the investment under Income Tax section 80c.

      Thanks..
      Rakesh Ranjan.

      • @Rakesh
        You can invest into PPF, Five years fixed deposit and NSC for tax saving, if you want safe returns.

• Wonder if there is a ELSS mutual fund that invests mostly in gold? If yes is SIP an option for easy investment? Targeting both gains from gold and tax exemption.
  Thanks in advance.

  • @Prasanna
    There is no ELSS fund which invests in Gold.

• Hi Pankaj, I want to invest Rs 40000 in tax saving schemes this year. Please suggest shall I go for tax saver mutual fund only (if yes please suggest some good funds) or shall I split this into PPF and LIC. I already have LIC policy for 14K premium.

  • @Divya
    If you only have insurance at this point, then you should split tax saving investment into PPF/NPS and tax saving mutual fund.
    If your age is below 35, you can invest in 25-15 ratio with higher one in tax saving mutual funds.
    Start SIP in tax saving mutual funds and choose from following funds: Canara Robeco Equity Tax Saver, HDFC Taxsaver, Franklin India Taxshield, DSPBR Tax Saver and Fidelity Tax Advantage.

• Thanks Pankaj.I have heard that we should invest in such funds which should give us returns over and above the rate of inflation. Is there any funds or investment option which can help me in this (this may be of any type-MF/equity/debt/insurance). PPF and NPS are safe but provide low rate of returns.

  Moreover, how is HDFC Crest, can we consider this for investment (as insurance is not my primary requirement). They are assuring for guaranteed returns. Not sure, all these things are true.

  Please suggest. Thanks !!

  • @Divya
    In NPS, you can choose to invest majorly in equities and the it will generate better return and will beat inflation. But investment in NPS will be locked until retirement.
    If you are only looking for tax saving options, then NPS and Tax saving mutual funds are best options for returns.
    Please don't buy insurance policies for returns, don't mix insurance and investment. Guaranteed returns insurance may yield even less return than PPF. They are just a marketing gimmick. Insurance companies and agents earn huge money out of these.

    • This week I would like to invest Rs. 35,000/- for tax savings. Please suggest me where I should invest the amount in (i) Canara Robeco Equity Tax Saver for 5 years or (ii) Canara Tax Saver (as on date @9%) for 5 years.

      • @Pankaj
        If you are looking for safe returns, then I would advise you to pick Canara Tax saver five years tax saving fixed deposit. You will get guaranteed 9% p.a. return on investment. TDS will be deducted from the interest paid. Also whole gains will be added to your taxable income and taxed as per your slab rates.

        Canara Equity tax saver is a equity linked mutual fund and contains a good amount of risk and is market linked. There is no guarantee on returns. You may earn 15% p.a. after five years or even may have loss.
        Lock-in period for this is three years, after that redemption can be done. Its not advisable to invest in equity mutual funds as lump-sum amount, better is to invest through monthly SIP as cost of buying is averaged out.
        There will be on income tax on gains on this investment.

        If you don't need the amount even after 5 years and wants to stay invested for longer period, you can invest in equity tax saver as over a longer period, equities have generally produced better returns than fixed deposits.

• Hi Pankaj,
  I carried out deep analysis of all top rated ELSS funds and found "Canara Robeco ET (G)" as best bet considering its past performance, resistance to downturn as well as expense ratio. Can you please elaborate one of your comment, where you rated HDFC taxsaver better than this. What are CR's shortcoming.
  Also you said CR is an ELSS so benefit won't be available from next year, so buy this year only (2011-12), I don't understand this?
  I'm planning to take monthly SIP of 2000 of CR equity taxsaver (G).
  Thanks

  • @Vijay
    I have been recommending both canara and HDFC in my suggestions.
    But if a person wants to choose only one, then HDFC has been advised by me for following reasons:
    1. Low expense ratio.
    2. Better and bigger fund house (HDFC mutual fund)
    3. High AUM (assets under management) compared to Canara.
    4. Availability. Canara does not have online transaction facility and most of the online brokerage/trading/investment firm too do not provide transaction in same.
    All above points may be beneficial in the longer run. But performance in future cannot be guaranteed and ultimately its investor's decision to choose funds.

    Personally, I have been investing in both.

  • @Vijay
    Regarding second question, As Direct tax code is going to be implemented from April, 2012, there won't be any tax benefit for tax saving mutual funds.
    Most probably all tax saving funds will be converted/merged to normal equity diversified mutual funds.
    You may read more on direct tax code here.

    • Thanks a ton for the reply and educating about DTC. I purchased SIP for CR and Religare Tax Saver ( Rs 1000 each), got floored by their Sharpe, Rsq and alpha ratings. I agree both of them have high expense ratio.

• Hi Pankaj
  I am 24 years old and have started my career in the recent past. I want to invest Rs 3k-4k in tax saving mutual funds. I know the concept of mutual funds but what I dont know is which one would return greater returns. Also I would like to know about the option of investing in Gold ETFs. DO these ETFs offer tax exemption?

  • @Ankit
    On the basis of past performance of mutual funds, following funds are good for investment: Canara Robeco Equity Tax Saver, HDFC Taxsaver, Franklin India Taxshield, DSPBR Tax Saver and Fidelity Tax Advantage.

    Gold ETFs does not have any tax exemption available on investment.

• Hi Pankaj,

  I have been investing Rs 2000/ month, in IDFC Tax ELSS - Growth for 21 months.
  But the Appreciation is Rs -4498 and Annualized XIRR($) is -12.20%

  Considering the performance is it better to discontinue to invest in this mutual fund and switch to other?

  • @Prasad
    IDFC tax ELSS is a comparatively new fund and has been an under-performer since inception.
    Also negative returns are due to bad market conditions. Even the best tax saving mutual funds have delivered -5-8% over last one year.

    You should stop investing in IDFC and start SIP in any of the following funds:
    Canara Robeco Equity Tax Saver, HDFC Taxsaver, Franklin India Taxshield, DSPBR Tax Saver and Fidelity Tax Advantage

    • Thanks Pankaj.. Please suggest websites through which I can start investing in SIP s.

      Regards,
      Prasad

      • @Prasad
        If you want to do it online, read this post: http://www.pankajbatra.com/india/how-to-transact-mutual-funds-online-directly/

        • Hi Pankaj,

          I sent a mail to stop the investment in IDFC. But they said to give cancellation request personally at there office.
          Is there any other way to stop the Investment?

          Thanks.

        • @Prasad
          Transaction requests are not taken over email. You may have to either submit a signed request or do it online (if IDFC supports it and you have PIN for same)

• Hi Pankaj,

  I'm new to mutual funds... I have planned to invest SIP in ELSS and 6000 every month. I have shortlisted HDFC Tax Saver and Canara Robeco Equity Tax Saver, 3000 each.. Kindly provide me suggestion.... Provide me suggestion about ULIPs..

  Thanks and Regards,
  Silambarasan

  • @Silambarasan
    Both HDFC tax saver and Canara tax saver funds are good and you may start investing in them.
    Don't go for ULIP if you want to keep investment for a shorter term (less than 15-20 years).
    If you want an insurance, go for pure term insurances only.