Best Tax Saving SIPs in 2023: 10 ELSS Funds You Can Consider Investing In Through SIPs
SIP or Systematic Investment Plan is one of the most effective tax-saving instruments. You can claim a tax deduction of up to Rs. 1,50,000 on your taxable income by investing in an ELSS via SIP as per provisions of Section 80C. If you fall within the highest tax slab rate of 30%, you might end up saving Rs. 45,000 per year. Here’s a list of the best tax saving SIPs you can consider investing in. Check it out!
10 ELSS Fund to Invest Through SIP to Save Tax
| S No. | ELSS Funds | 5 Year Returns |
| 1. | SBI Tax Advantage Fund – Series III – Direct Plan-Growth | 24.66% |
| 2. | Quant Tax plan – Direct Plan-Growth | 23.48% |
| 3. | Mirae Asset Tax Saver Fund – Direct Plan-Growth | 18.97% |
| 4. | BOI AXA Tax Advantage Fund – Direct Plan-Growth | 18.86% |
| 5. | Canara Robeco Equity Tax Saver – Direct Plan-Growth | 18.01% |
| 6. | SBI Long Term Advantage Firm – Series III- Direct Plan-Growth | 17.91% |
| 7. | IDFC Tax Advantage (ELSS) Fund – Direct Plan – Growth | 17.13% |
| 8. | SBI Long Term Advantage Fund – Series II – Direct Plan-Growth | 17.11% |
| 9. | SBI Long Term Advantage Fund – Series I – Direct Plan-Growth | 16.37% |
| 10. | Navi ELSS Tax Saver Fund – Direct plan – Growth | 11.45% |
*Return data as of March 9 2022
So, these are the top SIPs that you can invest through SIP to save taxes. But before investing in any of these, let’s check out the features, advantages and other related information.
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Features of ELSS Mutual Funds
Here are the features offered by top ELSS Mutual funds:
- Low Lock-In Period
If you compare different tax saving schemes, ELSS mutual funds have the lowest lock-in period. The period extends up to 3 years, after which you may redeem your investment.
- Tax Saving Benefit
There is a maximum tax benefit of Rs. 1,50,000 as mentioned under Section 80C of the Income Tax Act. As a result, investors can save tax and reap better returns. In other words, you get more income due to the deduction claimed at the time of tax calculation.
- Two Modes of Investment
ELSS Mutual Funds offer two modes of investment, including lump sum and SIP. However, many investors choose SIP over lump sum due to additional benefits, which is discussed in the following sections.
- Professional Management
Under this scheme, investors get professional assistance. In other words, their investment is managed by experienced individuals who know the ups and downs of the market. They are also called the fund manager.
Benefits of Investing in ELSS Mutual Funds through SIPs
If you choose the SIP method to invest in tax saving funds, then you can enjoy the following benefits:
- Power of Compounding
One of the top benefits of availing best tax-saving SIPs is the compounding effect. Compounding begins when your investment starts earning returns for you. For example, when you invest via SIP, the returns you gain on your previous investment get reinvested, thus increasing your potential return manifold. Moreover, if you want to achieve the maximum, you can extend the period of staying invested.
- Minimum Initial Investment Amount
An investor can start with just Rs. 500 per month in mutual funds through SIP. Thus, it will avoid any financial pressure on your wallet. Later, when you feel you can increase your monthly investment amount, you can increase the SIP amount gradually. Also, Mutual fund houses offer investors a top-up system to reach their investment goal easily.
- Rupee Cost Averaging
By availing best tax saving SIPs, investors also benefit from rupee cost averaging. It is a concept where some investors buy more units when the NAV or Net Asset Value of a fund is low and a lesser amount of units when it is high. As a result, over an extended period, the purchasing cost of the investment balances out. So, you don’t need to worry about timing the market.
- Convenient Investing
A systematic Investment Plan or SIP is a convenient mode of investment. Most investors do not have time for market research and extensive analysis to balance their portfolios. In SIP, after you invest in a good fund, you can just instruct the bank, and SIP will take care of the rest of your investment.
So if you want to enjoy the benefits of investing in the best tax saving SIPs, Navi offers investors the option of Navi ELSS Tax Saver Fund Direct-Growth. With this fund, individuals can save tax and claim a deduction of Rs. 46,800 under Section 80C of the Income Tax Act. If you are ready to invest, visit Navi Mutual Fund to get started!
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Things to Consider before Investing in Tax Saving SIPs
Before choosing the ideal ELSS mutual funds to invest in through SIPs, make sure to consider the following list to avoid any future regrets:
- Investment Horizon: Time horizon is an essential factor to consider while investing in an ELSS fund as they come with a lock-in period of three years. So, the investors cannot redeem their investment before the said period expires.
- Expense Ratio: Expense ratio is the annual charge that you need to pay to the AMC for fund management and operations. If the expense ratio is lower, it will allow the investors to earn an increased return on their investment. On the other hand, a high expense ratio results in reduced gains on investment.
- Fund’s Past Performance: Investors should look into the history of the fund performance, including their 3-year and 5-year returns. It gives an insight into how you can expect a fund to perform in the future and whether it will reach the investment objective. However, remember that past performance does not necessarily determine its future performance.
Who Should Invest in Tax Saving Funds Through SIP
An investor with the following goals can consider investing in the best tax saving SIPs:
- Individuals having a long term investment horizon of at least 3 years.
- Investors who want to invest in equity instruments primarily.
- Individuals or HUF who wish to enjoy tax-saving benefits.
Taxability of ELSS Mutual Funds
The taxability of ELSS Mutual funds is similar to any other equity class of funds. In other words, it is taxable at the hand of the investors. However, remember since there is a lock-in period of three years, there is no window to gain short term capital gains.
On the other hand, long term capital gains of investors up to Rs. 1,00,000 is tax exempted. However, an amount that exceeds this limit is taxable at 10% with no indexation benefit.
Final Word
You can find the top ELSS funds in this guide that would let you save taxes through SIP investment. However, make sure to consider your risk appetite, investment goals and other vital factors to make the most of your investment.
FAQs
No, investors do not need a Demat account to invest in ELSS Mutual Funds. Many other options are available for investment such as via AMC, stock exchange broker, online distribution, or offline distributor. However, the process may vary.
There is no good or bad time for starting a tax-saving SIP since you are investing monthly, weekly or quarterly through an SIP as per your preference. Therefore, it balances out the purchasing cost for you. So, you can select any date of the month and continue your investment regularly.
In a systematic investment plan, individuals invest a fixed amount regularly. But in ELSS funds, these regular investments get locked in for three years which the investors cannot break if they want to enjoy the tax benefit.
The process of starting with your best tax saving SIPs is quite simple. You just need to follow the below steps:
Complete ‘Know Your Customer’ or KYC process
Set your investment goal
Choose with which ELSS Mutual Fund you want to start your SIP with
Invest in it
Like any other equity investment, ELSS Mutual Funds also come with a certain degree of volatility. It is because their performance varies on market movement. However, there is also a high potential to earn good returns compared to other tax-saving funds.
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