Looking for the best ELSS funds for 2022? We’ve compiled it for you! Read this blog to find out more about top ELSS funds.
The world of mutual funds has options for every risk profile and goal. Want predictable returns? Debt funds. Want aggressive returns? International funds. Want stable long term returns? Large-cap funds.
What if you want to earn lucrative returns and save tax? ELSS mutual funds are the answer. Yet, finding the right ELSS funds can be a challenge even for skilled investors.
The Indian market is chock-full of mutual funds after all. That’s why we want to help you cut through the noise with a list of the best ELSS funds for 2022. Best part? They're handpicked by our wealth advisor!
An Equity Linked Savings Scheme or ELSS fund is an equity fund that invests in stocks. ELSS funds are unlike any other mutual fund because they can help you save tax of up to ₹46,800 per financial year.
At the same time, the best ELSS funds are known to generate lucrative returns in the range of 12-16% over the long term. That’s 2x better than tax saving investments like fixed deposits, PPF, and others.
What you should know is that the benefits come at the cost of a mandatory lock-in of 3 years. That being said, ELSS funds carry one of the lowest lock-ins of any tax saving investments.
This means you can work towards your long term goals in a disciplined manner and save tax at the same time. Let us now take a look at the top ELSS funds for 2022 handpicked by Cube’s advisor Wealth First.
ELSS funds invest in stocks. That’s how they’re able to generate potentially high returns over the long run. In fact, 80% of an ELSS fund’s portfolio comprises equity and equity related investments.
An asset class like equities is known to grow over 3 to 5+ years while being volatile in the short term. That’s why the lock-in period can be a boon, as investors can shut and forget it for at least 3 years.
But, the magic lies in choosing the right ELSS fund by evaluating several factors. That’s what Cube’s mutual fund advisor does. Here’s a sneak peek into the best ELSS funds chosen by Wealth First.
Mirae Asset Tax Saver Fund is a top ELSS fund that was launched in 2015. The fund’s portfolio includes 70 stocks of companies like HDFC Bank, Reliance Industries, ICICI Bank, and more.
With an AUM of ₹11,963 crores, Mirae Asset Tax Saver Fund has generated 19.42% over the past 3 years and 17.32% over the past 5 years. Returns since inception stand at 17.43%.
Kotak Tax Saver Fund has been around since before the iPhone was a thing. Launched in 2005, this top ELSS fund holds 58 stocks in its portfolio including ICICI Bank, Reliance Industries, SBI, and more.
The fund has an AUM of ₹2,670 crores and has generated 12.05% returns since inception. 3-year returns stand at 16.81% while 5-year returns were 13.30%.
An advantage of investing in ELSS funds is that they allow you to save tax under Section 80C. The math behind it is simple. If you invest ₹1,50,000, you can save up to ₹46,800 in tax every financial year.
While this is relatively straightforward, investors make the mistake of leaving their tax planning to the last minute. You can avoid this and stay ahead of the game by consulting a trained financial professional.
Saving tax isn’t the only advantage of investing in the best ELSS funds. You could also earn potentially high returns. The reason? ELSS funds invest in stocks that have the potential to grow exponentially over time.
Check out the returns generated by top ELSS funds on Cube handpicked and curated by Wealth First.
The scope to earn solid returns with ELSS funds is a possibility, albeit with a relatively high risk. That’s why it is best to take a risk quiz to know if you should invest in ELSS funds.
When you invest in an ELSS fund, you get a basket of top stocks. This can help you save time and effort. Furthermore, a fund manager and their team will be handling the stocks for you.
This gives you the added advantage of having professionals manage your investment. To summarize, you get many for the price of one when you invest in an ELSS fund.
But should you diversify within and across the mutual fund categories? Watch this video to know more.
There’s a typical problem you may encounter when trying to invest in ELSS funds. Since the market has many ELSS funds to offer, the weight of choice can be heavy, leading to two issues.
Thus, it’s useful to get an expert opinion on whether you need to invest in multiple ELSS funds to save tax or if one fund would do the job. Want to know more? Watch this video.
An ELSS fund carries a 3–year mandatory lock-in. The implication is that you can’t withdraw your investment during the lock-in. This could be a bane or boon depending on how you view it.
ELSS funds are definitely not the ideal emergency fund since liquidity is effectively zero for the first 3 years. However, the shut it and forget it principle can help you grow your wealth in the long term.
Stocks are known to be volatile in the short term. ELSS funds invest in stocks and by association, are also prone to high volatility in the short term. Checking your fund’s performance every day can thus be uneasy.
However, you can sleep well at night if you’ve invested in top ELSS funds that are handpicked and curated for you by an expert.
A gain of more than ₹1,00,000 earned from ELSS funds is liable for tax. Since there’s a mandatory lock-in of 3 years on ELSS funds, Short Term Capital Gains tax doesn’t exist.
Long Term Capital Gains (LTCG) on investments sold after 3 years are taxed at 10%. Dividends are also taxable even if you receive them during the lock-in. They’re taxed based on your I-T bracket.
Tax benefits aside, ELSS funds fall under the relatively risky category purely because they invest in stocks. This means that an ELSS fund can be prone to high volatility in the short to medium term.
This also means that ELSS funds may not be the right investment for everyone. There are two ways to identify your risk profile:
Investing in any asset should align with your financial goals. The reason? Investing is all about achieving milestones. Similarly, it would pay to evaluate why you want to invest in ELSS funds.
For example, if you’re building an emergency fund and think ELSS funds are the right option - they’re not. On the other hand, if you want to save tax and build wealth for long term goals, ELSS funds may be suitable.
Go back to the very first line of this blog, “The world of mutual funds has options for every risk profile and goal”. This means that there’ll be good ELSS funds and subpar ELSS funds.
Evaluating each fund on multiple criteria is necessary to ensure that you choose the best. This means going beyond an ELSS fund’s star ratings and into details like the track record, turnover, and more.
Doing this may be difficult for working professionals. That’s why you could benefit from a service like Cube that gives you access to ELSS funds that can work for you. Download Cube To Know More.
Note: Facts & figures are true as of 16-05-2022. None of the information shared here is to be construed as investment advice. Exercise caution when investing in assets like stocks, mutual funds, alternative investments, and others.
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