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

Facebook Comments
Jack of multiple trades. A generalist! Founder of Sparse Labs. Find me at FB, Twitter or LinkedIn .

Published

Write a Comment

Comment

665 Comments

  1. Hi Pankaj,

    I am planning to go for SBI magnum tax gain and HDFC tax saver with 25K each. Can I join these plans from any of the banks? Do I want to pay any entry load for doing like this?

    Also taking the dividend yearly or cumulating will be the best option?

    Waiting for your reply.

    Thanks & Best Regards,
    Remya

    Reply to Remya

  2. Thanks for your advice

    I would like to know should one considered NAV in mind before investing say like if i am investing 10000 in tax saving MF so should i look for higher nav funds or Nav which starts with zero .could you please suggest me on it and which one gonna give me higher returns .

    2 ) My second question is apart from ElSS fund in which MF should i invest as i am planning to invest 10000 and expecting some good returns after 1 or 2 years

    Regards
    Rajesh

    Reply to rajesh

    • @Rajesh
      Its the past performance of the fund thats important and not the NAV. You will see a good fund like Birla 96 tax saving scheme dividend has a low NAV as its in dividend option but its one of the best tax saver funds. Ultimately the percent return matters. You might be able to buy 1000 units of a fund whose NAV is 10 Rs and only 100 for a fund with NAV 100. If fund of NAV 100, goes up to 120 after one year thats 20% return and your total money will be 12000, whereas other fund might reach to NAV and with total value 11000. So by this example, it will be clear that even if the NAV is higher, you can have more return for the invested amount.
      So my suggestion is go with funds which have proved themselves in past, no matter whats the NAV.
      Apart from tax saver, if you want to invest in other MF for 1-2 years, It would be best to go with Balanced or MIP funds. As investment period is not long, there can be risk in investing into pure equity based funds as after one year, they might be at a lower price that what they are currently.

      Reply to Pankaj

  3. Hi Pankaj,
    An open-ended equity linked
    savings scheme with a lock-in period of 3 years does it mean we can redempt our investment any tym after say at least 6months or after 3 yrs…
    plz say me difference between open ended and close ended

    Reply to Asha

    • @Asha
      Open-ended scheme means that mutual fund remains open for buying anytime.
      close-ended funds allows application only for a fixed amount of time and you cannot buy them after the fund is closed for buying.
      Lock-in period of 3 years means that it cannot be sold before 3 years of purchase (not even by paying exit load etc).
      There is no exit load if you redeem after 3 years on ELSS plans.

      Reply to Pankaj

  4. will we hv to pay exit load for a open ended elss for 3 yrs if we exit or redempt it after say 1 yr??or we wil hv to pay exit load for an open ended elss if we redmpt after 3 yrs???or in both??

    Reply to Asha

  5. I have 1 lac rupees to invest and i know sip is better than to pay lumpsum but i have no other option than to invest this money in lumpsum and i have decised to invest in RELIANCE DIVERSISFIED POWER- GROWTH, please advise whether my decesion is correct and i want to which mutual fund gives better return year after year as per your knowledge.

    Thanks
    AMOL

    Reply to amol

    • @Amol
      I won’t suggest you to for a thematic fund like reliance diversified power. It only invest in power generation companies.
      It will be better if you invest in diversified funds like HDFC Top 200 Fund, Birla Sunlife Frontline equity fund, DSP Backrock Top 100 fund,
      Sundaram S.M.I.L.E Fund, Sundaram Select Midcap or ICICI Pru Discovery Fund.

      Reply to Pankaj

      • i will like to correct you Pankaj, just dont go by the name “reliance diversified power”
        it has a diversified portfolio and is not just power generation companies
        here are couple of scrips they have in their portfolio based on weightage:

        Torrent Power Utilities 386.19 6.66
        Cummins Engineering 265.17 4.57
        ICICI Bank Banking/Finance 259.47 4.47
        Reliance Infra Utilities 258.08 4.45
        Jindal Steel Metals & Mining 228.87 3.95
        Tata Power Utilities 215.57 3.72
        Jaiprakash Asso Cement 210.36 3.63
        ONGC Oil & Gas 199.21 3.43
        PTC India Services 185.21 3.19
        Siemens Telecom 161.52 2.78

        i highly recommend this fund as i have my own experiences with it.

        Reply to Romel

  7. Hi Pankaj

    Thanks for the reply
    As per your suggestion i took birla tax 96 plan , but now i want to invest 10000 more for tax saving . i know i go on asking same question every time but still i would like your expert advice for my investment
    Among SBI Magnum Tax Gain, Franklin India Taxshield and HDFC Tax saver which fund you would prefer

    Reply to rajesh

  9. among birla tax relief-96-, hdfc tax saver fund, sundarmabnp paribas tax saver, sbi magnum tax gain-96 which is better?also which is best growth or dividend option?

    Reply to Vinay

  11. Thank u sir,and say suppose i have already invested in birla tax relief and if i want to invest further in it…will my earlier investment be further extended to three from my present date of investment?also HDFC TAX Saver Growth NAv is on the higher side so plz is it ok to invest?

    Reply to Vinay

    • @Vinay
      3 years lockin is calculated from the day units are allocated to you.
      Lets say, If you have purchased 100 Rs in Feb 2006 for 100 units, you can sell 100 units in Mar 2009.
      If you buy more 100 units in same fund in 2008, these 100 units are sellable in 2011 and earlier investment won’t be impacted by that.
      No of units and NAV does not matter, its the percent profit you make out of it that matters. If a fund with NAV 10 rises upto 11 and a fund with NAV 100 rises to 110, return is same 10%

      Reply to Pankaj

  12. hi i have invested in sbi tax gain 93. my question is why it does not come in recommendations of most finance weekly s. thank you

    Reply to sony

    • @Sony
      SBI Tax gain is good overall, but some other mutual funds has outperformed it, in last one year.
      Its best that you compare returns of all mutual fund for last 6 months, one, two, three years and decide yourself which one is good. However past performance is not a guarantee of future.

      Reply to Pankaj

      • hi thank you sir, but is int it difficult to campare a fund that was started last year -when sensex was down, and they where able to make some good profit out of it- with a fund that was there at the time and made someloss. but now both are in a level field. but my question was not that. why the sbi tax gain is not at all mentioned in finance magazines. is there anything i am missing here about it

        Reply to sony

        • @Sony
          It better that you don’t buy a fund started last year as its not enough time to test the fund.
          Some of the funds may have invested in safer avenues, to make +ve profit. More the risk and more the gain in stock market, so for sure when market will rise back, these fund will give less return than some others.
          There are older funds also who have tasted the bad and good times and came out well.
          Finance magazines are nothing but a marketing channel. Its like Outlook and other’s rating on MBA colleges in india, or Times of India’s movies review.
          Its better that you yourself compare the performance on based on stats (Past Return, Portfolio, Assets under management etc.)

          Reply to Pankaj

    • the biggest problem with the SBI tax gain 93 has been its huge bloated Fund Size. This will be big load for the Fund manager to carry and deliver the returns. The Fund could be just an average performer going forward.
      Preferably invest in Religare Tax Plan

      Reply to Srikanth

  13. thank you sir. now my mind is little clear. what about the new tax relief on infrastructure bond. does it apply this year. and where do i get it from.

    Reply to sony

    • @Sony
      The current budget has introduced an additional deduction of Rs 20,000 for infrastructure bonds. This is over and above the limit of Rs 1 lakh under Sec 80C which is available for several instruments including life insurance. Infrastructure bonds usually are of 5 to 10 years duration.
      IDBI was one of the regular issuers of such bonds in the past. You will need to watch for such issues to come. Now that the budget has provided this benefit, you can expect to see some public issues of infrastructure bonds.

      Reply to Pankaj

  14. I read all ur posts, much useful for all of us… Thanks for the info…

    I plan to invest around 6,000 or 8,000 pm in ELSS schemes with SIP option. But i dont know which funds are best(as lot of funds exist).

    1. Suggest me 4 good ELSS funds for 3 to 5 years.
    2. Pls advice whether i can invest whole amount in 1 fund(HDFC Taxsaver) or good to invest in several funds?
    3. which option dividend or growth is best? (I need long term gains)
    4. I have to start invest in march or april for FY2010 tax saving?
    5. Where i can approach for opening this SIP, and monthly how i pay the SIP amount? Via Online or Manual?
    6. Using Icici direct account is best or I feel its better to open with any agents for proper guidance and support? (Both have entry load or not)
    7. How to avoid entry load?

    Please suggest me…
    Thanks in advance…

    Reply to Mothilal

  15. Hi Pankaj,

    Thank you very much for your kind information…

    1. “You have suggested me the funds ICICI Pru Tax plan, HDFC Tax saver, Birla Sunlife Tax relief and Franklin India Taxshield.”
    I am interested in HDFC Tax saver, Birla Sunlife tax as you said, but other two changes are
    SBI Magnum taxsaver and
    Sundaram BNB paribas taxsaver…
    Please suggest me about these four funds are right to choose or not…

    2. Is there any variations in birla sunlife taxsaver 96 and birla sunlife taxrelief. similarly SBI Magnum taxsaver 95 and SBI Magnum taxsaver…. Pls tell which are the correct fund to choose.

    Reply to Mothilal

    • @Mothilal
      Sundaram and SBI Magnum are also good, you may go with them.
      Actual full name of birla tax saving MF is Birla Sun Life Tax Relief ‘96, and that of SBI is SBI Magnum Taxgain Scheme 1993

      Reply to Pankaj

  16. Hi Pankaj,
    This year i have to invest around 60000 to reach 1 lack under 80c. What are the best options, Can I invest in mutual funds total amount, please suggest me how much can I invest in different MFs.
    Waiting for your response.
    Thanks,
    Ram

    Reply to Ram

    • @Ram
      Yes, you can invest whole amount of 60K in mutual funds. I would also recommend that first you get a term insurance also, in case you don’t have one, for a cover for atleast 60-70 times your monthly salary.
      Among mutual funds, you can invest in ICICI Pru Tax plan, Birla Tax relief, Franklin India Taxshield, HDFC Tax saver and Sundaram BNP Paribas Taxsaver.

      Reply to Pankaj

  17. Hi Pankaj,

    I am already having an demat account in apollo sindhoori. Now i want to invest in SIP in ELSS. Is it possible to buy through my demat account.

    Reply to Mothilal

  18. Hi. Pankaj,

    I am laready invested in SBI Magnum, Reliance & ICICI Pru, all tax saving funds with Growth Options. To diversify, I am looking at other funds.
    I hear a lot about Canara Robeco Tax saving Fund. How it compares to HDFC tax saving Fund. Or shall I invest partly in both? Please advise.

    Or could you suggest any other fund for Tax saving purpose? I need to invest about 25K.

    Thank You in Advance

    Reply to Purshottam

    • @Purshottam
      You can invest further into HDFC Tax savings fund. Canara Robeco is good so far but its not that old and has not seen good/bad times, wheras HDFC fund has withstand all seasons and is there in market from past many years and performing.
      You may also consider Sundaram BNP Paribas Taxsaver, Franklin India Taxshield, Birla Sunlife Tax relief and Fidelity Tax Advantage.

      Reply to Pankaj