Which Tax Saving ELSS fund should I invest in?
Pop quiz. Let’s say on March 2nd, 2015 (5 years ago), you invested ₹100 in the HDFC Tax Saver Fund, and another ₹100 in the HDFC Liquid Fund. Which do you think is worth more today? The Liquid Fund or the Tax Saver Fund?
I even tell you, one of the ₹100 investments has grown to ₹141, and the other to ₹117. Which is which?
The liquid fund beat the pants off the actively managed Equity Fund with an annual return of 7.12% versus 3.26%. Not even close.
Chart below shows how the two investments fared. The red line is the Liquid Fund investment.
Source: valueresearchonline
Finance textbooks say you can’t get more (than risk-free) return without taking on risk. Investors often confuse this to mean you get more return if you take more risk. Two very different things.
Wait. Are we saying you should invest in liquid funds and not Tax Saver ELSS funds? No, we’re not.
Just like if you hopped on a TVS Scooty and I got into an Aston Martin DB5, who reaches our common destination first is not just decided by the horsepower under our respective commands. My ability to pilot the machine will decide when and if I get there at all.
Come financial year-end tax deduction investment proof submission season, you should not click and buy the first ELSS Mutual Fund your Relationship Manager emails or whatsapps you about.
We looked at the available ELSS funds to figure out which ones make the most investment sense in March 2020.
So, how should you pick an ELSS Mutual Fund?