How to pick the right tax saving fund


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There are plenty of equity linked savings schemes (ELSS) to choose from. Here is how to make the right decision. An article by

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How to pick the right tax saving fund

  1. 1. How to pick the right tax-saving fundThere are plenty of equity linked savings schemes (ELSS) to choose from. Here is how tomake the right decisionAuthor : iFast ContentWhen picking a fund, the biggest mistake investors can make is opting for one simply because ithas topped the latest performance chart. There are innumerable instances of portfolios gettingpacked with poor funds when that is the sole parameter used.A stark example is Taurus Tax Shield in 2006 and 2007. It was the worst performer in itscategory in 2006; when the average return was 30%, this fund delivered -10%. Come 2007, witha return of 112% it was the best performer in its category way ahead of the average 57%.Investors who went for it simply because of the great performance in 2007 would have been atad disappointed. Because since then the fund has delivered middle-of-the-road annualperformances with a top quartile performance only in 2009.Right now, investors are well prone to making the same mistake with Principal Tax Savings. Ifone looks at the current trailing 1-year returns, it bags the first place. In 2012 too it put up achart-topping performance. But a look at its returns in the previous years is not that impressive.In fact, in 2008, 2009 and 2011, it found itself virtually at the bottom rungs.Another case in point is HSBC Tax Saver, which is currently doing very well. It was the fourth-best player in 2012 in its category and is currently the second-best performer after Principal TaxSavings in the 1-year return bracket. However, its performance in the past 3 calendar years(2009-11) reveals that it finds no place in the first or second quartile.Our advice, don’t opt for a tax-saving fund simply because of the latest returns. One has to lookat the returns over the past few years to ensure whether such returns are in sync with the fundsinvestment philosophy or whether it is just a blip. Also, consistency of returns must beconsidered. Does the fund astound periodically or can one expect a steady performance?Another factor to look at is the composition of the portfolio. Is the portfolio packed with mid capstocks? If yes, are you comfortable with the risk and volatility that may accompany it? Does thefund deliver by taking concentrated bets? If yes, again, are you willing to go with such astrategy?To make it simple, our research team has come up with the best equity linked savings schemes(ELSS). The selection is based on performance (historical and consistency of returns), expenseratio and risk. Take a good look at them to see which one is a good fit in your portfolio.
  2. 2.  Axis Long Term Equity Fund: Though a relatively new inclusion to the category, its performance numbers cannot be argued with  Canara Robeco Equity Tax Saver: The large-cap tilt and immense diversification will make conservative equity investors feel right at home  Franklin India Taxshield: A conservative bet in this space, investors will be rewarded without undue volatility  ICICI Prudential Tax Plan: Though not focused solely on large caps and returns not always stable and consistent, this fund rewards its investors well  Reliance Tax Saver: In the recent past, this one has been making its mark on the performance charts with an actively managed portfolioTo read about the benefits of tax-saving funds under Section 80C, click hereTo buy and sell mutual funds online, click hereContent Team, | iFAST Financial India Pvt Ltd.DISCLAIMER iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of theAsset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materiallyinterested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of anymutual fund. No investment decision should be taken without first viewing a mutual funds scheme information document includingstatement of additional information. Any advice herein is made on a general basis and does not take into account the specificinvestment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legaladvice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of thefuture or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise.Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website .Please read ourdisclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is noguarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, theNAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name ofthe Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement ofAdditional Information and Scheme Information Document carefully before investing.