Choosing the Best ELSS SIP: Franklin Small Caps, Reliance Tax Saver, and DSP BlackRock Tax Saver Fund

Investing in ELSS (Equity Linked Savings Scheme) is a popular choice for tax savers given its maximum tax benefit of 1.5 lakhs. However, selecting the right SIP (Systematic Investment Plan) can be a daunting task, especially when you already have multiple mutual funds in your portfolio. In this article, we will review the options you have: Franklin Small Caps, Reliance Tax Saver, and DSP BlackRock Tax Saver Fund, while also discussing the criteria for choosing the best ELSS SIP based on risk and return preferences.

Current Portfolio Overview

ICICI Pru Long Term Equity Fund Invesco India Tax Plan Axios Long Term Advantage Fund

These funds are widely considered among the best in their category. However, when it comes to ELSS, it's essential to consider various factors, including risk, returns, and compatible investment goals.

Understanding ELSS SIP

ELSS SIP is an ideal option for tax savings and long-term wealth creation. It offers tax benefits through Section 80C of the Indian Income Tax Act. When choosing an ELSS SIP, it is crucial to align the fund's investment strategy with your financial goals and risk tolerance.

Review of Franklin Small Caps

Franklin Small Caps, as many mistakenly think, does not exist as a separate mutual fund. However, the Franklin India Smaller Companies Fund is a more suitable option for small-cap investments. This fund focuses on companies with smaller market capitalizations, which might not be ideal for ELSS since ELSS funds are generally designed to offer a mix of large, mid, and small-cap investments.

Evaluation of DSP BlackRock Tax Saver Fund

DSP BlackRock Tax Saver Fund is predominantly a large cap-focused fund, with an average market cap of 53,520.27 Cr. While this fund has a lower risk profile and potentially higher stability, it may not provide the same level of returns as a diversified ELSS fund. Large-cap funds generally offer less reward potential compared to mid and small-cap funds.

Review of Reliance Tax Saver Fund

Reliance Tax Saver Fund takes a more balanced approach, holding equal amounts across different market caps. With an average market cap of 28,716.33 Cr, the fund has a strong emphasis on mid-cap stocks, holding 35 such stocks. This diversified portfolio is more likely to offer decent returns in the long run, making it a better choice for an ELSS SIP.

Recommendation for Axis Long Term SIP

Your current SIP in the Axios Long Term Advantage Fund has a bias towards large-cap stocks, with 67 funds in this category. Given this, I recommend that you opt for the Reliance Tax Saver Fund as an ELSS SIP. While equal-cap ELSS funds are relatively rare, this choice aligns with a balanced investment strategy that minimizes risk and maximizes potential returns.

Strategic Investment Tips

Considering your current portfolio, you already have two ELSS funds: Axis and Reliance. It's advisable to distribute your SIP amount equally between these two for a well-diversified approach. For future contributions, avoid adding more ELSS funds to your portfolio. Instead, focus on allocating your funds across different sectors and asset classes to optimize your returns.

Happy Investing!