Best Mutual Funds to invest in 2012 in India (ELSS Funds)

January to March is the period when you (individuals) generally chase behind best mutual funds to invest and other tax saving options. Equity Linked Savings Scheme (ELSS) is one such option where you opt to invest and get tax benefit under section 80C of Income Tax Act 1961. Investing in ELSS offers not only tax benefits but also an opportunity to create wealth in long term and accomplish goals. ELSS are equity-oriented mutual funds in which your money is locked in for three years and you would be mere spectator analyzing the performance of your investment.

Tax benefits of ELSS Funds

Under section 80C of income tax act 1961, you are allowed to invest up to Rs 100,000 in tax saving instruments (includes ELSS schemes) which is deductible from gross total income. Dividends received from ELSS funds are also tax exempt.

Timing to invest in ELSS Funds

There is no such ideal time to invest in top performing ELSS funds but if you had invested lump sum amount between January and March 2011 then your investments would be in losses or generated very low profits because now SENSEX is down by 20% (approx) compare to previous year. So, it’s recommended to invest through a systematic investment plan (SIP) in ELSS. This would take care of volatility in the index and will purchase units each month into your account. In this way, you don’t need to mark the timing for investment in ELSS and no need to rush for tax planning products at financial year end.

Best ELSS Mutual funds to invest in 2012 in India are:

Lets have a look at top performing ELSS funds on the basis of their past performance, investment objective and their portfolio holdings. This brief analysis would give you a fair picture about tax saving mutual fund schemes

ICICI Prudential Tax plan (G)

Objective and brief profile

One of the best ELSS mutual funds to invest in 2012 in India is ICICI Prudential Tax Plan. The main objective of this fund is to seek long term capital appreciation by investing approx 90% into equities and balance 10% into debt instruments and money market instruments.

The benchmark index is S&P CNX 500 and fund under management was Rs 1197.24 (as on 31^st Dec, 2011). This fund is one of the oldest schemes available in the market and given returns of 27% in last 10 years. The fund managers are Rajat Chandak since August 2009 and Chintan Haria since May 2011.

Investment strategy and performance

In equity, this fund invests around 60% in large cap / blue chip stocks and 40% is invested in mid cap and small cap stocks. This strategy of investment has paid off well to performance of this fund with good returns in last 3 years. During 2009, the fund registered 112% returns and achieved top-slot among its peers.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are energy 17%, financial services 15%, technology 11%, healthcare 9% and engineering 9%. The funds top holdings are 10% investment in Reliance Industries, 7% in Infosys and 6% in ICICI Bank.

HDFC Taxsaver Fund (G)

Objective and brief profile

HDFC Tax Saver is an another tax saving fund which is one of the best mutual funds to invest in 2012. The main objective of this scheme is to seek capital appreciation by investing approx 80% into equities and balance 20% into debt instruments.

The benchmark index is S&P CNX 500 and fund under management was Rs 2880.16 (as on 31^st Dec, 2011). The fund managers are Vinay Kulkarni since November 2006 and Miten Lathia since August 2010.

Investment strategy and performance

This fund invests around 59% in large cap / blue chip stocks and 41% is invested in mid cap and small cap stocks. Fund managers follow a top-down approach in research and take a call of investments. This fund gave consistent returns with outstanding track record of a decade and a half. The fund gave 28% returns in last 10 years to its investors. However, the returns in last 1 year is lower compare to its peers due to higher holdings in banks which were under pressure on account of liquidity tightening by RBI.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are financial services (15%), Energy (12%), FMCG (10%), Healthcare (10%) and Technology (9%). The funds top holdings are State Bank of India (7%), ITC (5%) and Tata Consultancy Services (5%). This fund had nil investments in Reliance Industries from November 2009 and March 2011 based on top-down research approach.

Fidelity Tax Advantage Fund (G)

Objective and brief profile

To achieve long term capital growth by investing in diversified portfolio. The fund invests approx 80% into equities and balance 20% into cash equivalents products.

The benchmark index is BSE 200 and fund under management was Rs 1124.8 (as on 31^st Dec, 2011). The fund manager is Sandeep Kothari since July 2006.

Investment strategy and performance

This top performing ELSS fund has shown consistent performance in bull and bear markets. The fund invests around 80% in large cap / blue chip stocks and 20% in mid cap and small cap stocks. Such, exposure to large cap stocks gives stability to this fund but it misses out on mid cap and small cap rally during bull phase. The fund manager invests in a company analyzing its fundamentals, valuations and growth outlook. He follows bottom down approach while investing and avoids taking short term investment calls. Since, inception the fund has been holding particular 15 stocks then invests in other stocks based on research.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are financial services (21%), Energy (14%), Healthcare (12%), Technology (12%) and FMCG (8%). The funds top holdings are ITC (6%), Infosys (6%), HDFC bank (5%), ICICI Bank (4%) and Reliance Industries (5%)

Franklin India Taxshield Fund (G)

Objective and brief profile

To achieve capital appreciation in medium to long term by investing approx 80% into equities and balance 20% into public sector units bonds, debentures and money market instruments.

The benchmark index is S&P CNX 500 and fund under management was Rs 574.94 (as on 31^st Dec, 2011). The fund managers are Anand Radhakrishnan since April 2007 and Anil Prabhudas since February 2011.

Investment strategy and performance

This fund is giving a consistent performance from inception. It’s neither too aggressive nor conservative in its approach towards picking the stocks. The fund invests around 70% in large cap / blue chip stocks and 30% is invested in mid cap and small cap stocks. The fund manager follows bottom up approach while picking the stocks with attractive valuations, management’s expertise and growth prospects in long term among its peers. This fund is tailor made for investors preferring defensive scheme in their portfolio.

Holdings

As on 31st Jan 2012, the top 5 sectors in which the fund has investments are financial services (19%), Energy (14%), Information Technology (11%), Telecommunication (10%) and Automobile (8%). The funds top holdings are Infosys (8%), Bharti Airtel (7%), ICICI Bank (6%), HDFC Bank (4%), Grasim Industries (4%) and Reliance (4%).

Reliance Tax Saver (G)

Objective and brief profile

To achieve long term capital appreciation by investing predominantly into stocks. The fund invests into equities between 80 to 100% and around 20% in debt instruments.

The benchmark index is BSE 100 and fund under management was Rs 1841.22 (as on 31^st Dec, 2011). The fund managers are Ashwani Kumar since August 2005 and Viral Berawala since September 2010.

Investment strategy and performance

This fund focuses to invest in mid cap and small cap stocks by analyzing the valuations, growth prospects of business and management experience. The fund invests around 30% in large cap / blue chip stocks and 70% is invested in mid cap and small cap stocks. This fund is recommended to aggressive investors to gain profits in mid cap and small cap rally. The fund manager invests in stocks by following bottom up approach in research. The fund has plunged from its top performance in last three years due to slowdown in automobile sector and financial services in which the fund has investments around 40%. These sectors performance had slowed down due to tightening of liquidity and rising interest rates.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are Automobile (22%), engineering (18%), Financial services (18%), healthcare (9%) and energy (9%). The funds top holdings are Eicher Motors (7%), State Bank of India (5%), Maruti Suzuki (4%), Bharat Forge (4%) and Aventis Pharma (4%).

Religare Tax Plan (G)

Objective and brief profile

To generate long term growth on capital invested into equities across sectors. The fund invests around 80% in equities and 20% in debt instruments. This fund aims to invest in 20 to 50 well researched stocks.

The benchmark index is BSE 100 and fund under management was Rs 103.66 (as on 31^st Dec, 2011). The fund managers are Vetri Subramaniam since December 2008 and Vinay Paharia since June 2010.

Investment strategy and performance

This fund has emerged as one of the outperforming schemes in short span of time from its inception. The fund invests around 60% in large cap / blue chip stocks and 40% is invested in mid cap and small cap stocks. This scheme is one of the aggressive funds tilted towards investing in mid cap and small cap stocks. The fund manager utilizes bottom up approach to pick quality stocks based on valuations to invest. It gave fare performance in bull and bear phase which can be observed from annualized returns in 3 years and 5 years.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are financial services (21%), Energy (14%), Technology (12%), FMCG (11%) and Services (9%). The funds top holdings are ICICI Bank (6%), Infosys (6%), Reliance Industries (5%), HDFC Bank (5%) and ITC (4%).

Canara Robeco Equity Tax Saver (D)

Objective and brief profile

This fund seeks capital appreciation in long term by investing ~85% into equities and ~15% in debt instruments.

The benchmark index is BSE 100 and fund under management was Rs 307.47 (as on 31^st Dec, 2011). The fund manager was Anand Shah till March 2011 then it’s managed by Soumendra Nath Lahiri since April 2011.

Investment strategy and performance

This fund gave mediocre performance until 2007. In last 4 years the fund has been outperforming against its peers and benchmark index. The fund invests in diversified sectors by following combination of the top down and bottom up approach. Fund manager’s investment trait is to view sectors looking attractive based on economy condition then pick stocks in that sectors with strong valuations and growth prospects. The fund invests around 70% in large cap / blue chip stocks and 30% is invested in mid cap and small cap stocks. Such, high bets on mid cap and small cap stocks makes it aggressive scheme for investors.

Holdings

As on 31^st Jan 2012, the top 5 sectors in which the fund has investments are Financial Services (20%), Energy (15%), FMCG (11%), Technology (9%) and Construction (9%) The funds top holdings are HDFC Bank (5%), Reliance Industries (5%), Infosys (4%), and Tata Consultancy services (4%)

Future of ELSS post implementation of Direct Tax Code (DTC)

After reading about best mutual funds to invest in 2011 (ELSS), let’s have a look at the future of ELSS after Direct Tax Code (DTC) implementation. As per last draft of DTC, ELSS will not be counted as tax saving investments. DTC is expected to implement from April 2012 or from next year. So, if it’s implemented from April, 2012 then this would be last quarter to invest in this scheme. The funds invested would be locked in for next 3 years and you can claim the benefits of investment in this year. The alternative to ELSS under DTC is New Pension Scheme (NPS) which you can consider to build wealth and continue getting tax benefit on your investments.