Best tax saving mutual fund

Equity Linked Saving Scheme mutual fund is termed as the best Tax saving mutual fund. Understanding the features of this fund will help us in understanding the fund in a better manner.

Under section 80C, this mutual fund is termed as the best tax saving scheme. This scheme is usually the only pure investment under the named section 80C though at time investors have a tendency to tale the exposure to equity market

This scheme comes with a lock-in period, which is usually of three years. This is the lowest of all mutual funds which are available under the section 80 C. other options usually have a lock-in period of five years.

This fund falls in the under EEE tax rule. The EEE stands for Exempt-Exempt-Exempt. No tax is usually applicable during the contribution, accumulation and the withdraw period. Investors get the tax exemption from the law. Public provident fund and the employee provident funds are the only other options under which investors usually enjoy tax exemption

Dividends, which are declared on this scheme, are usually tax free in the hands of the unit holder.

You can actually start a SIP in the ELSS. This is with a minimum investment of as low as Rs 500. This is unlike life insurance where you do not have to commit a multi-year investment.

For an investor to be in a position of selecting the best ELSS, they have to keenly consider the following.

Return

It is quite important to keenly note the return rates of the fund over different time scales

Age of the fund

The age of the fund is a full description of the experience the fund has gained over the period. By considering the age of the fund, you will be in a position of evaluating its performance over certain periods. Funds, which have a good truck record, are usually preferred.

Risk Vs Return

Funds, which have goods rate of return, are in most instances associated with high risk. It is quite appropriate to keenly consider the risk-return trade off. There should be a balance between the two. Better if the return is higher than the risk involved though this is rarely the case.

Expense ratio

The expense ratio of the fund should be lower than the average for the category.

Rating

It is also very appropriate to consider the rating if the fund. Ratings are usually a reflection of short-term performance of the funds.

One of the best ELSS FUND is the Axis Long Term Fund. This fund is associated with high alpha and a low fund risk grade. This fund has been performing very well of the last five years. Within these five years, the SIP return has been around 35%. This is one of the highest in this category.