In 2009 I shared Best Tax Saving Funds and though the idea of finding the best tax saving ELSS fund is still valid, it makes sense to be sharing some new insights as well as the look into better option to save tax.
Before I begin, you have to understand my take on Tax Saving.
My take on Saving TAX
When it comes to saving tax my view is pretty simple. I should be able to
- Save maximum tax.
- Invest minimum possible amount
- Equity linked returns.
If you are not inline with the above 3 points, the rest of the article will not make much sense.
As you are reading further I can safely assume that if you are not agreeing to the above 3 points, you are not against it as well.
To save maximum tax under section 80C, you have an upper cap of investing Rs 1 lakh or 100,000. There is nothing much that can be done to increase that limit.
Now you may think that we need to invest 100,000 to save tax of equal amount as well but that is not true. You can invest less than 100,000 and still can get a tax benefit of full 100,000. It can be done if you use ELSS Dividend funds where you invest 100,000 but invest in those ELSS tax saving funds that pay high dividends each year as well as perform well in market and then you get back some amount in few days to few months time. I have been doing the same for last few years and you can read more about it here – Full tax saving without investing one lac.
I am not a fan of investing money for 3 years in debt related schemes because according to me 3 years is a good enough time to invest in market for averagely good returns.
On top of that the aim of the investment is not to build wealth and so I normally redeem my tax saving investments as soon as I can. So my aim is to redeem my ELSS fund that I have invested 3 years back and then put the same money into a fresh ELSS funds to save tax this year. At times redemption in March is not very fruitful and so I may just invest before and then redeem in a month or two later as well. That is what my plans this year is. Invest in March and may be in April or May I will redeem my ELSS fund that I could have redeemed in March.
So now you have clear idea about my views on ELSS and tax savings and so now the process I follow to
The process I follow to Select ELSS Funds
Most ELSS funds share dividends in the month of March and so I will look for those kinds of funds who has good track record of sharing dividend in the month of March so I can just invest the amount under 80C and get some amount back as tax-free dividend.
I short list funds that I think will perform over the period 3 years. This shortlisting is based on kind of stocks and business they have majority of their investment. Here is the List of Tax Saving Funds by ValueResearchOnline. Sort them based on 1 Years performance and select few funds that have performed averagely for last 1 year or so. We choose average performing funds because they have invested in some under performing midcap stocks which have not performed in the current market rally and so have higher chances of performing later. You can also check similar fund selection criteria by Manish Chauhan – Why you should no go with ‘Past Performance’ in Mutual Funds.
I one line I will say that select those funds that have a good track record but has not been able to perform recently in the market upswing.
My List of Funds for 2013
My final lists of funds for 2013 are as follows.
1. Canara Robeco Tax Saver
I rejected this fund for personal reasons but I think it deserves into my list of Tax saving fund in 2013. I have invested in this fund 3 years ago and so I will be redeeming this fund either in March of may be in April or May. On top of that this fund has an average return of 15% for last 1 year. The fund has recorded the Dividend for this year and the record date is today 8th March 2013. Everything going against this fund personally and so I prefer to choose other funds.
2. Principal Personal TaxSaver and Sundaram TaxSaver
Principal Personal TaxSaver and Sundaram TaxSaver both have an average return of around 13% in last one year but both the above funds has not given any dividend for last few years. I expect some dividend this year because of better returns but then I will go with the track record of this fund of not giving dividend and so rejected them. Dividend History Data from MutualFundsIndia.com
3. HDFC TaxSaver
HDFC TaxSaver is my choice of fund for 2013. I have plans to invest in this fund in next few days. I will invest in next few days because I have invested heavily in Real Estate (Will share once I have the deal sealed) in the current year and am short of fund as of now. The reason I select this fund is because
- Though the fund has given a return of 30% since inception, it has underperformed in last 1 year with average return of below 8% only.
- Dividend is paid regularly and has not been recorded till date in this fiscal. I hope to invest in this fund before the record Dividend date.
- Invests heavily in Finance and technology sector that is more likely to perform in the coming years.
Do you agree on my views on saving tax? If you do that is awesome but if you don’t that is perfectly fine and you can share your tax saving ideas that work for you.
If you agree on my views I will suggest you not to follow my fund suggestions of HDFC TaxSaver blindly. Research on your own and come up with a choice of fund. I will be more than happy to change my investment from HDFC Tax saver to your choice of fund.
Update: I have made this article go live on Friday night after 8 PM to make sure you have complete weekend to research and avoid adrenal rush for investing in mutual funds.
Update: Anybody who suggest me a fund with a reason and if it is something that I invest into, I will be giving free access to Do It Yourself Technical Analysis Members area because of his efforts. He will also be rewarded with my eBook absolutely free. Remember you should not only name the fund but also share a reason why you are suggesting that fund. Share your choice of tax saving ELSS fund in comments below.
Update 12 March 2013: Winner of the contest is Sunil and though I have not yet decided to invest in Franklin Tax Shield Fund yet but I think his effort and research deserves a mention.