According to the Finpeg CRAFT Framework, the following are the best ELSS funds for saving tax in 2020 –

• Mirae Asset Tax Saver Fund
• Axis Long Term Equity Fund
• DSP Tax Saver Fund

These funds were chosen by us because they do well on certain pre-defined criteria. These criteria make Finpeg CRAFT Framework truly unique and more reliable than star ratings and rankings found elsewhere.

Read more about Finpeg CRAFT Framework for mutual fund selection here.

Here’s a quick introduction to each of the parameters we assess –

Finpeg CRAFT Framework

• Long Term Percentile Rank

This is the average percentile rank of the fund (among its peers) since January 2004. Additionally, it is based on 3-year rolling returns. This is relative measure since we are calculating the fund’s rank among its peers.

Lower the long-term percentile rank, better the relative performance.

• Top25 Percentage

This indicates how many times out of 100 did the fund appear in the top 25 percentile among its peers. This again is based upon a 3-year rolling returns basis. This is different from the first parameter since this is more focused toward consistency of performance.

Higher the top25 percentage, more consistent the relative performance.

• Downside Deviation

This is similar to standard deviation. Standard deviation considers volatility on the upside as well as downside. But the upside volatility is something that most investors are okay with. Hence, only the downside deviation is a better measure of riskiness of the fund.

Lower the downside deviation, lower is the risk associated.

• Near Term Percentile Rank

This parameter gives us a sense of the recent performance of the fund. We calculate 1-year average rolling returns for the last one year. Further, similar to the long-term percentile rank, we find the percentile rank of the fund among its peers.

Lower the near-term percentile rank, better the recent relative performance.  

• Total AuM

This number tells us two things –

• Is the fund large enough to have adequate liquidity?
• Is the fund size manageable?

This metric is not extensively looked at for best large cap mutual fund selection. This is because large cap stocks are among the most liquid. Hence, large cap mutual funds are unlikely to see sustained underperformance due to a very large AuM. A small AuM, however, is a worrying factor as it also shows lack of investor confidence.

• Average Return in 2008-09

This shows how the fund was managed during the global financial crisis.  A positive return should be extremely encouraging.

Greater the average return in 2008-09, better the fund management during times of crises.

• Fund Manager Since

This is a very important check. This helps us determine how much of the fund’s performance is attributable to the current fund manager.

If we have amazing numbers, they don’t mean a whole lot if the fund manager has changed recently. Then, we dive into assessment of the new fund manager and try to measure the impact of his appointment.

Why Mirae Asset Tax Saver Fund is the best ELSS mutual fund for saving tax

Just as we had run-away winners in the large and mid cap, and small cap categories, we have a similar situation here. Mirae Asset Tax Saver is considerably ahead of competition in the ELSS or tax saver category.

We have been recommending this fund to all our clients since the day we started our operations. This was because Mr. Surana already had made it clear that he is a great stock picker in the large and mid cap spaces. In general, ELSS funds have a multi cap structure with large and mid cap focus.

Even today, we have no second thoughts about recommending Mirae Asset Tax Saver Fund for the purpose of saving tax under section 80C.

Axis Long Term Equity is probably the most popular ELSS fund around. It has an AuM of slightly greater than Rs. 21,000 crore. This confirms the popularity of the fund. While the AuM size not been problematic yet, it could potentially create performance issues.

If one wants to invest in ELSS funds and forget about it for the next 10 years, Mirae Asset Tax Saver Fund is definitely a better choice than Axis Long Term Equity Fund. This is because of the comfortable AuM size of Mirae Asset Tax Saver Fund.

Return and risk of the best ELSS mutual funds for saving tax

The criteria we use to assess mutual funds are not very straight-forward. However, they are very accurate and exhaustive.

At the end of the day, most investors are concerned with risk and return. In this section, we will have a look at the historical performances of the best ELSS mutual funds listed above.

We will look at 3-year and 5-year rolling returns and standard deviations of the funds.

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