Understanding Taxes

Best Tax Saving Mutual Funds for 2010

Equity Linked Saving SchemeInvestment Yogi : Offers a comprehensive list of the Best Tax Saving Mutual Funds Online in 2010 in India. 

What is ELSS (Equity Linked Saving Scheme)?

ELSS, popularly known as Tax Saving Mutual Fund, is a category of Mutual Fund where a major portion is invested in Equity & Equity related instruments. An investment up to 1 lakh is exempted from income under section 80C, but there is a lock in of 3 years before you can withdraw. However, there is no upper limit on investments and long term capital appreciations are tax free. Dividends received are also tax free in the hands of the investor.

   

ELSS is a great instrument for tax planning which also ensures good returns. But investment should be carefully planned and you should devote sufficient time in selecting the right fund.

                       

Types of ELSS

Mutual Funds Online India

 

1. Growth: Investor does not get any income during the tenure of the investment. He will get a lump sum amount at the time of redemption or on maturity.

                     

2. Dividend: Investor gets a dividend from the fund house. He has two options:

  • He can cash on the dividends.
  • He can opt for dividend re-investment option.

In most funds you have Growth as well as Dividend options which you can choose depending upon your priorities.

Best Funds

We present the top 7 funds based on last 5 years’ performance:

Best Tax Saving Mutual Funds 2010 India

Figure 1. Source: Value Research

How to choose a fund for investing?

A good track record is no guarantee for future performance. You should also look at some quantitative measures to evaluate which fund is good for you.

  

Expense Ratio: Denotes the annual expenses of the funds, including the management fee, and administrative cost. Lower expense ratio is better.

 

Sharpe Ratio: An indicator of whether an investment's return is due to smart investing decisions or a result of excess risk. Higher Sharpe Ratio is better.

 

Alpha Ratio: Measures risk relative to the market or benchmark index. For investors, the more positive an alpha is, the better it is.

 

R-squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index. A mutual fund should have a balance in R-square and ideally it should not be more than 90 and less than 80.

 

Mutual Fund Investment Online India

Figure 2. Source: Value Research

Which fund is best for you?

Choice depends upon your risk profile and priorities. You should make an investment decision based on overall financial planning.

  

Large Cap Funds: These funds mostly invest in the large cap companies. While this may mean muted returns when the markets are rising, it also may mean a limited downside when the going gets tough. Franklin India Tax shield and SBI Magnum Tax gain are a few examples of this type of fund.

  

Growth Funds: These Funds have about 30% exposure to mid-caps, 10% to small-caps & the rest in large caps in its portfolio. Hence, it may give a higher return in rising markets. Sundaram BNP Paribas Tax saver is a good option in this category.

 

Mid-cap Funds: No pain, no gain. These funds have a sizeable exposure to mid-caps and small-caps. This aggressive investment style can pay rich rewards. Sahara Tax Gain and HDFC Taxsaver are good examples of a fund in this class.

 

Small Cap Funds: Small-cap stocks can act like performance enhancing drugs. In the above discussed types, the maximum allocation to small-caps is 12%. However, Taurus Tax shield has invested almost 30% in this high-risk zone. This can be very rewarding when the going is good, but a dream run can easily become a nightmare. Taurus Tax shield has given 98.01% returns in last 1 year.

Conclusion

You should do sufficient analysis before taking investment decisions. It should be guided by your overall financial situation, goals and risk profile. A Financial Plan is recommended before making investment decisions. SIP (Systematic Investment Plan) for a long time horizon is the most recommended way to invest in equity funds. You should avoid lump sum investments especially when the market is on a high.

                   

Want to know if you are saving and investing wisely? Use this calculator and find out. Click here to use other such calculators.

                                       

 

                                           

RELATED STORIES:

7 Tax Saving Strategies for Salaried Individuals

Section 80C

Best Mutual Funds for investing in India

Art of Tax Planning

      

Investment Yogi : Learn How to invest in Mutual Funds Online in India. A mutual fund investment strategy for today's economy. 

Published Dec 31 2009




Comments

Comments

 

Sumi said:

I really find this website good for understanding finance. I read most of the article written by Surya, and i feel he writes things in a very easy english which can be understood by any common person.

January 4, 2010 12:23 AM
 

Guest said:

Written quite well. Just that same thing is explained in a more lucid manner at www.valueresearchonline.com

January 6, 2010 3:54 AM
 

Deepak Shaw said:

@Guest: With due respect I find ValueResearch full of clutter, especially the home page. This article explains the same things in a much simpler way.

I guess you are trying to promote Value Research. Do you really need to? The author himself has mentioned Value research as the source.

January 7, 2010 6:04 AM
 

Salil said:

This simple english & proper explaination helps me take up my inventment planning seriously. Thankyou so much.

January 15, 2010 4:30 AM
 

Vikram said:

Simple & concise. The best site I have seen for Personal Finance.

January 18, 2010 12:15 AM
 

Anita Ahuja said:

Very Well Explained :) The stats are pretty cool too.

I have recently invested in UTI Tax Saving Mutual Funds, after reading about UTI's performance & being most favored by investors - Source The Telegraph. www.telegraphindia.com/.../story_11968236.jsp

January 18, 2010 2:16 AM
 

Ramesh said:

I appriciate this web site in providing financial advise.

February 2, 2010 5:25 AM
 

agni said:

very nice &QUITEUSEFULL INFORMATION IN iNVESTMENT AREA

February 4, 2010 5:30 AM
 

Srikanth Matrubai said:

February 7, 2010 11:11 AM
 

tanweer said:

is  birla sun life tax 96  is good fund to invest  please suggest

February 25, 2010 6:49 AM

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