Best Tax-Saving Funds for Consistent Growth and Balanced Portfolio

When it comes to tax savings and achieving consistent returns with a balanced portfolio, tax-saving funds in India can be a great option. The choices are often driven by the need for good returns, lower downside risk during bearish markets, and ensuring compliance with tax regulations. Here, we will explore some of the best tax-saving funds that offer a combination of growth and risk management.

Understanding Tax-Saving Funds in India

India's tax-saving funds are primarily Equity Linked Saving Schemes (ELSS). These funds are equity-heavy, mandating a minimum 80% investment in equities, but they cannot invest in overseas markets, cannot take arbitrage positions, and require a lock-in period of three years from the date of investment. Given these restrictions, it's important to choose funds that offer a balanced approach to risk and return.

A Guideline for Choosing the Right Fund

There are several factors to consider when choosing a tax-saving fund. These include the fund's past performance, the investor's risk tolerance, and the alignment of the investment goals. Here are a few top-performing ELSS funds that can help you build a balanced portfolio:

Quant Tax Plan Mirae Asset Tax Plan Canara Robeco Equity Tax Saver Fund

It's important to note that past performance does not guarantee future results. Each mutual fund scheme operates independently, and performance can be influenced by market conditions, management strategies, and other factors.

Using a Combination Approach

For a more balanced portfolio, consider combining ELSS with other tax-saving options like Public Provident Fund (PPF) and National Pension Scheme (NPS).

A discerning investor might use a combination strategy, such as investing 50% of the target corpus into PPF and 50% into ELSS each year. This approach helps in achieving diversification and can provide more consistent gains over the long term. For example, after 3 to 4 years, when the ELSS has appreciated substantially, you can sell some units and invest them into PPF to realign your portfolio.

Top-Performing ELSS Funds

Based on research and analysis, here are some top-performing ELSS funds recommended by Sharekhan Research:

AXIS LONG TERM EQUITY FUND - GROWTH DSP TAX SAVER FUND - GROWTH CANARA ROBECO EQUITY TAX SAVER - GROWTH BNP PARIBAS LONG TERM EQUITY FUND - GROWTH ICICI PRUDENTIAL LONG TERM EQUITY FUND - GROWTH

These funds have been selected based on both quantitative and qualitative criteria, ensuring they offer a balanced combination of growth and risk. Whether you are looking for long-term returns or diversification, these funds are worth considering.

Conclusion

Choosing the best tax-saving fund involves understanding the nature of these investments and crafting a strategy that aligns with your financial goals. Whether you opt for ELSS alone or combine it with other tax-saving options like PPF and NPS, the key is to maintain a balanced portfolio that supports your long-term financial objectives.

For more detailed insights and to stay updated with market trends, consider consulting with a financial advisor. Remember, the tax-saving journey is a long-term commitment, and consistent, informed decisions can lead to significant financial gains.