The Best ELSS Fund Options for Tax Savings in 2023
When it comes to investing in equity-linked savings schemes (ELSS) in India, the choices can be overwhelming. ELSS funds are popular for their tax benefits, but choosing the right one can be a daunting task. In this article, we will explore some of the best ELSS fund options based on various metrics, including performance, risk management, and overall value.
Introduction to ELSS Funds
ELSS, or Equity-Linked Saving Schemes, are mutual funds that provide tax benefits under Section 80C of the Indian Income Tax Act. These funds invest primarily in equities, with a lock-in period of three years. While these funds offer significant tax savings, it's important to understand that they are riskier than fixed deposits or debt funds.
Key ELSS Fund Options
IDFC Tax Advantage Fund (RBI Approved)
IDFC Tax Advantage Fund is one of the top ELSS options in the current market, offering an impressive interest rate of 24.99% and a 3-year lock-in period. While it is a risk fund, it has historically provided great results. This fund is well-regarded for its competent fund management and is suitable for investors seeking both tax savings and growth potential.
Other Highly Rated ELSS Fund Options
Mirae Asset Tax Saver Fund (Regular Plan - Growth) - Rated 5 stars by Morningstar. Canara Robeco Equity Tax Saver Fund (Regular - Growth) - Also rated 5 stars by Morningstar. Baroda BNP Paribas ELSS Fund (Growth) - Rated 5 stars by Morningstar. ICICI Prudential Long Term Equity Fund - Tax Saving (Growth) - Rated 4 stars by Morningstar. DSP Tax Saver Fund (Growth) - Rated 4 stars by Morningstar. UTI Long Term Equity Fund - Tax Saving (Growth) - Rated 4 stars by Morningstar. Kotak Tax Saver Fund (Growth) - Rated 4 stars by Morningstar.According to Sharekhan Research and Morningstar as of October 2022, these funds are considered some of the top options in the ELSS category.
Understanding the Risk and Reward of ELSS
While ELSS funds offer considerable tax savings, they come with a significant risk. If you are investing in these funds, it's crucial to keep the lock-in period in mind. Even if there's a tight lock-in period, it's recommended to hold these funds for a longer period, ideally 5 to 7 years. This is especially important given the current market valuations.
Experts advise that investors should first evaluate their eligibility for other 80C tax-saving avenues such as life insurance, Public Provident Fund (PPF), and other similar instruments. If these avenues are already exhausted, then investing in ELSS may be a good option to explore.
Conclusion
Choosing the best ELSS fund can significantly impact your long-term financial goals. Whether you go for IDFC Tax Advantage Fund or any of the other recommended funds listed above, make sure you conduct thorough research and consult with a financial advisor to ensure that your investment aligns with your risk tolerance and financial objectives.