How to Select the Best ELSS Fund [June 2021]

best elss fund

Equity Linked Savings Scheme (ELSS) funds are equity-oriented mutual funds that help investors save income tax. Investments of up to Rs 1.5 lakh a year in ELSS funds are eligible for tax-saving benefits under Section 80C of the Income Tax Act.

I wrote the paragraph above for SEO. What this means in very simple words is that the money you invest in ELSS funds can be deducted from your taxable income. For example, if your annual income is Rs 10 lakh and you invest Rs 1.5 lakh in ELSS funds, then your taxable income reduces to Rs 8.5 lakh.

This way, ELSS funds help you save tax and also give you long-term growth because the money invested in them gets invested in the stock markets.

One important thing to note is that ELSS funds come with a lock-in of 3 years, which means that you cannot redeem your investments in them till the 3-year period gets over.

With the basics out of the way, let’s get down to choosing the best ELSS fund to invest in.

Which is the best ELSS fund right now?

I get asked this often. Right now, my answer would be the Mirae Asset Tax Saver fund – Direct Plan.

Before you read further, a disclaimer: I’m not a certified financial advisor.

However, I’ve been writing on personal finance since 2007 and even been investing myself since then. I’ve enough knowledge and understanding on how mutual funds work and what kind of research is required to invest in mutual funds.

To choose the best ELSS fund, I used two free Value Research tools.

First, I went over to the Value Research Fund Selector and picked the following filters:

  • 15 largest fund houses
  • Category: ELSS funds
  • Plan type: Direct
  • Rating: 4-star and 5-star

Here’s why these filters:

  • 15 largest fund houses to narrow down the search to reputed AMCs that have been around for long
  • Direct plans because they come with a lower expense ratio, which means you pay less as fund management fees
  • 4-star and 5-star rating because these will be funds that are earning superior risk-adjusted returns

My filters gave me a list of four funds.

I eliminated Axis Long Term Equity from the list because I want a fund with a smaller corpus. A fund with a lower AUM (assets under management) can be more nimble in taking investments calls. More on that here.

Then I headed over to the Value Research Fund Compare tool and added the remaining three funds there.

Over here, I saw that the Mirae Asset fund is the clear winner on two fronts:

  • It has the lowest expense ratio
  • It has the highest 1-year returns

My decision was made right here, but I opened up the fund’s page and decided to dig a bit more to be doubly sure. Here’s what I found:

  • The fund has beaten its category and index over all time periods like 6 months, 1 year, 3 years and 5 years
  • It is a large-cap, growth-oriented fund
  • The fund manager has been managing it since inception

That was pretty much all I needed to conclude that the Mirae Asset Tax Saver fund is one of the best ELSS funds to invest in right now. There are others that would be good choices as well, but if someone I know was asking me to recommend one today, I’d recommend them to invest in Mirae Asset Tax Saver.

Investing in mutual funds requires some amount of research, but once you get the hang of it, you can easily do this by yourself.

Want to start learning about mutual funds? You don’t need to look beyond Value Research.

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