in Finance, Income Tax, Investment, Mutual Funds |

Best Income Tax Saving Mutual Funds

I compared ELSS (Equity Linked Saving Scheme) mutual funds on the basis of their AUM (assets under management) size and past performance in 6 months, 1 year, 2 years and 3 years.

Finally following funds were found to be good.

Canara Robeco Equity Tax Saver, Sundaram BNP Paribas Taxsaver, HDFC Taxsaver, SBI Magnum Tax Gain Scheme 93 – Dividend, Franklin India Taxshield – Growth, DSPBR Tax Saver, Fidelity Tax Advantage

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  1. Dear Pankaj,
    I want to open a new SIP for INR 2000/ Month for 18 mnths. I have shortlisted three funds 1. HDFC Mid-CAP Oppurtunities 2. HDFC Top 200 & 3. HDFC Equity Fund. Please suggest which one to go for.

    Reply to Sudip

    • @Sudip
      These three funds fall under different categories.
      HDFC Mid-Cap is a mid and small cap mutual fund, HDFC Top 200 is a large and mid cap whereas HDFC Equity is a multi cap fund.
      Without knowing your investment horizon, risk appetite, existing exposure and future needs it won’t be good to advise you one fund from these.
      If its your first fund/exposure to mutual funds/equity, then I would suggest you to start with a large cap fund, which are less risky.

      Reply to Pankaj

    • @Sudip
      HDFC Top 200 is one of the best funds in its category.
      But investing in it depends on your need.
      If its the first time, you are investing into equity mutual funds and want to take less risk, consider Large-cap diversified mutual funds like DSPBR Top 100 equity or Franklin India Bluechip.

      Reply to Pankaj

  3. Hi Pankaj,

    I want to invest in 2 Small and Midcap fund through SIP
    1.SBI Magnum Emerging Business(D)(1000/)
    2.Reliance Equity Opportunity(G)(1000/)
    Right now these two funds are performing well.
    what do u suggest shall i go with these funds or invest in other funds.

    Thanks,
    Souradeep

    Reply to Souradeep

    • @Souradeep
      I would advise following funds in Small and MidCap segment:
      IDFC Premier Equity, ICICI Pru discovery Inst I, Birla Sunlife Pure value and Birla sunlife Dividend yield plus

      Reply to Pankaj

      • Hi Pankaj,
        Right now i am investing Rs. 9000/ per month through SIP
        HDFC Top 2000-2000/
        HDFC Equity-2000/
        DSP BR Top 100 Equity-1000/
        HDFC Balanced-1000/
        Reliance RSF balanced-1000/
        HDFC Midcap-1000/
        DSP BR Small and Mid cap-1000/
        i want 2 invest 1000/ more in Birla SL Divident Yield.i heard that investing in so many funds is not good for fund management.So i have to bear fund management cost.is it right?because i have already invested 9000/ in 7 diff funds.if it is nt good i can go for recurring deposit for 1000/ per month.What do you suggest?shall i gofor Birla SL divident Yield or recurring deposit?waiting for ur valuable suggestion.

        Thanks,
        Souradeep

        Reply to Souradeep

        • @Souradeep
          Its difficult to mange (track, renew, redeem, switch, updation etc) so many funds for you.
          There is no other disadvantage of investing in 8 funds.
          Fund management charges are fixed cost that is charged by mutual fund company for managing your investment. As they are in percent terms, 10 SIPs with 1000 Rs each will have same fund management cost as one SIP of Rs 10000.
          Go with Birla SL dividend yield, there is no need to go for RD unless you need safe returns.

          Reply to Pankaj

          • Hi Pankaj,

            SEBI has already announced that existing investors have 2 pay Rs. 100 for per 10000 investment in Mutual fund.I am investing Rs.10000/ per month through HDFC ISA account. is it applicable for me also?If it is applicable,can u pls tell me how much i have 2 pay for per year .FYI i am investing 10000/ per month in 8 funds(2000 in two funds and 1000 in 6 funds).

            Thanks,
            Souradeep

            Reply to Souradeep

  4. Hello Pankaj,

    I want to invest 3000 in Tax saving plan, kindly suggest which one is better Canara Rebeco or HDFC 200.

    Regards,
    Jyoti

    Reply to Jyoti

  5. Hi Pankaj,
    Im planning for an SIP, to invest Rs 36,000 an year in the following format for the next 20 yrs without switching through the funds. Pls advise with options, if I need to modify my portfolio in the current scenario to further strengthen it.

    HDFC Top 200 – Rs 1000
    Fidelity – Special situations fund – Rs 500
    Fidelity – India value fund – Rs 500
    Canara Robeco Equity Tax Saver – Rs 500
    Franklin India Bluechip – Rs 500

    Thanks,
    Eby

    Reply to Eby

    • @Eby
      You can divide 3000 per month into 1000 each into large cap, Mid and small cap.
      1000 in large Cap, you can pick from: DSPBR Top 100 equity, Franklin India Bluechip and ICICI Pru top 100.
      1000 in Large & Mid Cap, you can pick from: Fidelity India Growth, ICICI Pru Dynamic Inst I, HDFC Top 200, Canara Robeco Equity Diversified and Franklin INdia prima plus.
      500 in Multi Cap, you can pick from: HDFC Equity, Templeton India Growth, HDFC Growth and Reliance Regular Savings Equity
      500 In Mid and small cap, you can pick from IDFC Premier Equity, ICICI Pru discovery Inst I, Birla Sunlife Pure value and Birla sunlife Dividend yield plus

      Canara robeco equity tax saver is tax saving mutual fund and there won’t be any benefit available for it from next year, so you may invest in it this year (2011-12) only.

      Don’t start 20 years SIP with same funds. First start for 1-2 years and keep changing funds based on their performance after that period.

      Reply to Pankaj

      • Hi Pankaj,

        I dont prefer to switch over to funds at regular intervals, rather I want to systematically invest Rs 3000 pm for the next 20 yrs. What investment option would you suggest pls? Also, request you to give me options of the best funds available.

        Thankyou
        Eby

        Reply to Eby

        • @Eby
          You may choose SIP for 20 years. But keep tracking of performance as some other funds may start performing better and in that case you may want to stop earlier SIP and start in any other fund.
          Fund options would remain same as suggested in earlier comment.

          Reply to Pankaj

          • Hi Pankaj,

            Thanks so much, you’ve been of great help….
            Ive decided to invest as follows per the options you suggested.

            DSPBR Top 100 equity – Rs 1000
            HDFC Top 200 – Rs 1000
            Templeton India Growth – Rs 500
            IDFC Premier Equity Fund – Plan B (G) – Rs 500

            I shall keep in mind of exiting every 1-2 yrs depending on the performance of the funds. My only concern in this matter is that, when I do this exercise at the aforesaid intervals, in the long term will I end up loosing some money on any sort of charges?

            Reply to Eby

            • @Eby
              Funds look good now.
              You may valuate fund performance every 1-2 years and switch to any other better performing fund.
              There is no income tax on long term gains (more than a year) on equity mutual funds, so you may consider exiting one fund and entering another without any loss/charges.
              Only thing that may come is STT (Securities Transaction Tax) at 0.2%.

              Reply to Pankaj

              • Thanks a ton Pankaj!!!
                Its very much informative and useful!!!
                Shall definitely recommend the site to my friends 🙂

                Reply to Eby

  6. Hi Pankaj,

    Currently I’m investing 2000 p.m. in DSP BlackRock Top 100, HDFC Top 200 & ICICI Pru ULIP,
    16000 p.a. in LIC & 30,000 p.a. in PPF. As I’ve bought AVIVA Term Insurance of 75,00,000 for next 35 years so I want to discontinue my ULIP & LIC and invest 2000 p.m. in ELSS Fidelity Tax Advantage & also 2000 in IDFC Premiere Equity fund. Does this form a good portfolio. Also, as I’m discontinuing my LIC so is it good to put that amount in PPF or should invest that in mutual funds? Please suggest if there are any better options.

    Thanks,
    Nitin

    Reply to Nitin

    • @Nitin
      The decision took by you to discontinue ULIP and LIC insurance is correct. Insurance is not meant for investment.
      Keeping investment (mutual funds, PPF) and insurance (term insurance) separate is a good move.
      Mutual funds selected by you are also good ones.
      You must divide your investments into equities and debt based on your age. At younger age (<35), 80:20 ration can be maintained in equity vs debt.
      As age progress one may move towards debt and balanced funds.

      Amount withdrawn from LIC can be invested to PPF or NPS for long term investment.

      Reply to Pankaj

      • Thanks Pankaj. Just one more question on this that as I was availing tax rebate on the premium of 16,000 paid for LIC, so I’m thinking of investing the same as SIP of 2000 p.m. in some ELSS tax advantage fund so that I can still avail the rebate or is it good to put that amount in PPF?

        Reply to Nitin

        • @Nitin
          You can invest in tax saving mutual funds this year (FY 2011-12) but from next year there won’t any deduction available for these under Direct tax code.
          Even if you invest in PPF, you will get same deduction. PPF deduction will continue even under direct tax code.

          Reply to Pankaj

  7. I just read about direct tax code from April 2012 and it says that ELSS will not get tax rebate from next year. Does this mean that ELSS bought before April 2012 will also not get rebate. As I’m planning to buy SIP for Fidelity Tax Advantage, so will it receive tax rebate from Aril 2012 onwards??

    Reply to Nitin

    • @Nitin
      Tax benefit is not available for tax saving mutual funds from April 2012. Benefit for funds purchased before that would already be taken in respective year.
      If you start investing in SIP in ELSS, do it only till March 2012, as after that there won’t be any benefit.

      Reply to Pankaj

  8. Hi,
    I want to start SIP of INR5000.00 in the ratio of
    HDFC TOP200 INR1000.00
    DSPBR TOP 100 INR1000.00
    SUNDARAM SELET MIDCAP INR1000.00
    PPF INR2000.00
    all this investment I want to continue for 15 years, pls suggest me am I right or not
    N.B: I am 36yrs old

    Reply to BD

    • @BD
      Your funds section is good.
      However you may consider replacing Sundaram Select midcap with IDFC Premier Equity or ICICI Pru discovery Inst I
      You may start SIP for 15 years, but keep tracking for fund performance and in case you see that any fund is under-performing, stop SIP and start in another one.

      Reply to Pankaj

  9. Dear Pankaj,
    My earning per month is Rs. 25000 pm.I want to invest in Tax Saver mutual fund to get tax benefit.What will be the best mutual fund to invest and how much.I don’t have any other tax saving policy.Kindly suggest other tax saving option with the tax-saving mutual fund.
    Thanking you,
    Pinaki Mohan Sutradhar

    Reply to Pinaki

  10. Hi Pankaj,

    I have started investing on SBI Gold fund (ll be launching on 5 Sept) through SIP(2000/). Is it a right decision in current market scenario.Please guide me.

    Thanks,
    Souradeep

    Reply to Souradeep

    • @Souradeep
      SBI gold fund invests in Gold ETFs. Gold is already trading on a pretty high price. Upside may be limited from here and a correction may also happen.
      As US economic conditions are not good, countries are buying gold, hence high demand has increased price.
      It will be ok to invest 10% of your investments into such speculative assets.

      If you have demat and online trading account, it will be better to invest into gold ETFs as they have low expense ratio compared to gold mutual funds.

      Reply to Pankaj

  11. 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

    Reply to Pinaki

    • @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.

      Reply to Pankaj

  12. 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.

    Reply to Seemanth

    • 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

      Reply to Srikanth

    • @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.

      Reply to Pankaj

    • @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.

      Reply to Pankaj

  14. 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.

    Reply to Prasanna

  15. 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.

    Reply to Divya

    • @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.

      Reply to Pankaj

  16. 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 !!

    Reply to Divya

    • @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.

      Reply to Pankaj

      • 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.

        Reply to Pankaj

        • @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.

          Reply to Pankaj

  17. 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

    Reply to Vijay

    • @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.

      Reply to Pankaj

    • @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.

      Reply to Pankaj

      • 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.

        Reply to Vijay

  18. 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?

    Reply to Ankit

    • @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.

      Reply to Pankaj

  19. 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?

    Reply to Prasad

  20. 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

    Reply to 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.

      Reply to Pankaj