Top 6 ELSS That Gained Up To 25% CAGR In Past 3 Years: Invest Wisely For FY 2024-25

While traditional options like Public Provident Funds (PPF) and Fixed Deposits hold their place, Equity Linked Saving Schemes (ELSS) are increasingly becoming the go-to choice for savvy investors. Equity Linked Savings Schemes (ELSS), also known as tax saving mutual funds, has emerged as a popular investment avenue that offers tax efficiency and wealth accumulation at the same time.

These mutual funds not only offer tax benefits under Section 80C of the Income Tax Act but also have the potential to generate substantial returns over the long term. In recent years, certain ELSS/ tax saving mutual funds have demonstrated exceptional performance, achieving compound annual growth rates (CAGR) as high as 25% over the past three years.

[Read: 4 Best ELSS for 2024 - Top Performing Tax Saving Mutual Funds in India]

This robust performance underscores the efficacy of these funds in delivering superior returns amidst market fluctuations. Understanding the factors contributing to their success-such as astute fund management, strategic asset allocation, and robust investment strategies-can provide valuable insights for investors looking to optimize their investment portfolios.

As such, exploring the top-performing ELSS funds that have outperformed the market not only highlights their potential but also serves as a guide for investors navigating the dynamic landscape of mutual fund investments.

Here's a List of Top 5 ELSS Mutual Funds That Generated up to 25% CAGR in Past 3 Years:

#1 - Quant ELSS Tax Saver Fund

Quant ELSS Tax Saver Fund invests in a well-diversified portfolio of equities with growth potential. As an open-ended equity mutual fund, it is designed to provide investors with a means to save on taxes while simultaneously aiming for long-term capital appreciation.

Launched in April 2000, the scheme currently has an AUM of Rs 9,860.39 crores and is benchmarked against Nifty 500 TRI. Being a tax-saving mutual fund, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.

One of the defining features of the Quant ELSS Tax Saver Fund is its dynamic investment strategy. The fund managers employ a data-driven approach to identify high-potential stocks across market caps and various sectors.

In addition to its strategic asset allocation, the Quant ELSS Tax Saver Fund is known for its flexibility in adjusting to changing market conditions. The fund managers actively monitor economic indicators, corporate earnings, and market trends to make informed decisions about asset allocation and stock selection.

Quant ELSS Tax Saver Fund has emerged as a frontrunner, delivering a stellar 37.32% CAGR in the last three years based on daily rolling returns. The proactive investment style has been a key factor in the fund's ability to achieve substantial returns, often outpacing its peers in the ELSS category.

#2 - Bank of India ELSS Tax Saver Fund

Bank of India ELSS Tax Saver Fund aims to maintain a diversified portfolio of predominantly equity and equity-related securities across all market capitalisations. Launched in February 2009, the scheme currently has an AUM of Rs 1,326.57 crores. The fund typically has a lock-in period of three years, which is the shortest among tax-saving instruments, allowing investors to benefit from the long-term growth potential of equities while enjoying the tax benefits.

Managed by experienced fund managers, the Bank of India ELSS Tax Saver Fund primarily invests in a diversified portfolio of equity and equity-related instruments. The fund's strategy focuses on selecting high-quality stocks with strong growth potential across various sectors.

In recent years, the Bank of India ELSS Tax Saver Fund has garnered attention for its consistent performance. The fund's ability to generate competitive returns has been attributed to its disciplined investment approach and thorough research in-stock selection.

The ELSS boasts a CAGR of 25.78% in the last three years based on daily rolling returns. The performance of the fund is also influenced by macroeconomic factors, market trends, and the overall performance of the companies it invests in.

The scheme has performed well as compared to its peers. By maintaining a balanced mix of large-cap, mid-cap, and small-cap stocks, the fund aims to optimise returns while managing risk effectively.

#3 - Parag Parikh ELSS Tax Saver Fund

Parag Parikh ELSS Tax Saver Fund aims to generate long-term capital growth by investing in a diversified portfolio of stocks across various market capitalisations. Launched in July 2019, the scheme currently holds an AUM of Rs 3,454.03 crores.

The Parag Parikh ELSS Tax Saver Fund follows a disciplined approach to investing, focusing on identifying undervalued companies with strong fundamentals and long-term growth potential. One of the distinguishing features of the Parag Parikh ELSS Tax Saver Fund is its global diversification strategy.

Unlike many other ELSS funds that primarily invest in Indian equities, this fund has the flexibility to invest a portion of its assets in international stocks.

This ELSS boasts a CAGR of 25.69% in the last three years based on daily rolling returns. Performance wise, the Parag Parikh ELSS Tax Saver Fund has garnered attention for its consistent returns and prudent risk management. The fund's focus on value investing and global diversification has helped it navigate market volatility and deliver competitive returns.

#4 - Bandhan ELSS Tax Saver Fund

Managed by Bandhan Mutual Fund, the Bandhan ELSS Tax Saver Fund invests primarily in a diversified portfolio of equity and equity-related instruments. The fund's strategy is to identify and invest in high-quality companies with strong growth potential across various sectors. Launched in December 2008, the scheme currently holds an AUM of Rs 6,433.56 crores as of May 31, 2024.

In recent years, the Bandhan ELSS Tax Saver Fund has been recognised for its performance and consistent returns. The fund's success can be attributed to its disciplined investment process, robust research, and prudent stock selection.

Bandhan ELSS Tax Saver Fund has generated 25.32% CAGR in the past 3 years, it has earned substantial returns as compared to ELSS peers in the market.

As with all equity investments, there are inherent risks, including market volatility and potential capital loss. However, the long-term growth prospects and tax advantages make the Bandhan ELSS Tax Saver Fund a compelling choice for investors seeking to build wealth while benefiting from tax deductions.

#5 Mirae Asset ELSS Tax Saver Fund

Launched in December 2015, Mirae Asset ELSS Tax Saver Fund seeks to generate long-term capital appreciation through a portfolio of predominantly equity and equity-related securities across market capitalisation. The scheme currently holds an AUM of Rs 22,620.57 crores.

The fund managers employ a bottom-up stock selection approach, focusing on identifying companies that are leaders in their respective sectors and have sustainable competitive advantages.

The fund seeks to maintain a balanced portfolio with exposure across various sectors and market capitalisations, including large-cap, mid-cap, and small-cap stocks. This diversified approach helps in managing risks and capturing growth opportunities across different segments of the market. Mirae Asset ELSS Tax Saver Fund has gained 22.84% CAGR in the last three years.

Over the years, the Mirae Asset ELSS Tax Saver Fund has demonstrated a strong track record of performance, delivering competitive returns to its investors. The fund's performance is driven by its commitment to research-driven stock selection and active portfolio management.

Note: In my previous articles I have covered a comprehensive analysis by comparing the best ELSS mutual funds for 2024. You may consider reading...

• Best ELSS Mutual Funds: HDFC ELSS Tax Saver Fund vs Quant ELSS Tax Saver Fund

• Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund: Pick Your Tax-Saving Option

The Indian economy is projected to maintain a healthy growth trajectory in 2024. This positive outlook could translate into favourable market conditions for equity investments, potentially boosting returns from tax saving mutual funds. Additionally, with inflation rising, ELSS offers the potential for capital appreciation, helping you hedge against inflation and preserve your purchasing power.

[Read: How to Select the Best ELSS for Tax-saving in 2024]

Strategic Approaches to ELSS Investment:

While ELSS offers numerous advantages, it's important to understand the factors related to ELSS investment:

• Lump Sum vs. SIP: You can invest a lump sum amount upfront or opt for SIPs. A lump sum investment allows you to potentially benefit from market dips, while SIPs help average out the cost of your investment over time, mitigating market volatility. Both strategies have merits; choose the one that aligns with your financial situation and investment goals.

• Diversification: Don't put all your eggs in one basket. Consider investing in ELSS funds from different fund houses to ensure diversification. Different fund managers have varying strategies and expertise, which can help spread risk. Choose ELSS funds that are exposed to different sectors and market capitalisations.

• Asset Allocation: ELSS is just one part of a well-diversified portfolio. Consider your overall financial goals and asset allocation strategy before investing in ELSS.

• Market Volatility: ELSS is an equity-linked product whose value can fluctuate based on market conditions. Investors with a low-risk tolerance might find this volatility unsettling.

• Lock-in Period: The 3-year lock-in period restricts access to your invested capital. Ensure you have a long-term investment horizon before investing in ELSS.

• Active Management Required: Unlike index funds, ELSS requires active management by fund managers, and if their decision goes awry, it could impact your returns. Research the fund manager's experience and past performance in managing similar funds.

To conclude...

ELSS presents a compelling opportunity for tax-conscious investors in 2024. With its potential for high returns, tax benefits, and long-term focus, ELSS can be a valuable addition to your investment portfolio.

Given the 3-year lock-in period, ELSS encourages a long-term investment approach. This aligns well with the current market environment, allowing you to ride out any short-term volatility.

By delving into the specifics of the above-mentioned top-performing ELSS funds, investors can gain a clearer understanding of how different strategies and market conditions have influenced their growth trajectories. Moreover, analysing the sectors and stocks that have contributed to their performance can offer valuable lessons for constructing a diversified and resilient investment portfolio.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.