4 Top-Rated Funds for Tax-Saving

These ELSS funds enjoy our analysts' high conviction in their ability to outperform in the long term.
By Nazim Khan |  02-01-12 | 
 
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About the Author
Nazim Khan is Site Editor for Morningstar.in.

As the new calendar year begins and the end of the fiscal year nears, now is the time several investors will be looking to tax-saving (equity-linked savings schemes, or ELSS) funds to boost their tax planning.

Of the total pool of funds belonging to the ELSS category, we looked at those we have active analyst coverage over, and picked four that carry our highest Analyst ratings, which reflect our conviction in the funds' potential to outperform peers over the long term.

Below is the list of the funds, along with excerpts from the analyst reports highlighting our opinion on each, along with the Analyst Rating and the Star Rating for each fund, along with their three- and five-year returns (annualized). Returns were calculated ending December 31, 2011.

Note that the Star Rating (scale of one to five) is a backward-looking, quantitative measure of a fund's historical risk-adjusted performance compared to other funds in the same category, while the qualitative Analyst Rating (scale: negative, neutral, bronze, silver and gold) are our forward-looking opinion on a fund's ability to outperform peers.

Fidelity Tax Advantage

Star Rating:

Analyst Rating:

3-year returns: 23.56%

5-year returns: 8.37%

On Morningstar's measures, the fund has delivered high returns while taking on low risk. Its standard deviation, a measure of volatility, is lower than the average peer.

The lower risk is a function of fund manager Sandeep Kothari's emphasis to look for quality stocks at a reasonable price, according to the Morningstar Analyst Report. The fund also has a long-term focus and it reflects in the fund's low turnover ratio.

Franklin India Taxshield

Star Rating:

Analyst Rating:

3-year returns: 23.26%

5-year returns: 8.21%

Backed by a skilled fund manager (Anand Radhakrishnan), powerful investment team, a research-focused approach, the fund has delivered above-average returns while taking on low risk.

HDFC TaxSaver

Star Rating:

Analyst Rating:

3-year returns: 24.87%

5-year returns: 5.64%

The five-star fund has a clear long-term focus, which reflects in its low turnover rate (30% as of March 2011).

Fund manager Vijay Kulkarni who has helmed the fund since 2006 plies a muti-cap strategy and will not shy away from making outsized bets on investments he favours.

"We believe that over longer time frames, the investment style and the manager's expertise will hold the fund in good stead," says the Analyst Report.

DSP BlackRock Tax Saver

Star Rating:

Analyst Rating:

3-year returns: 18.52%

5-year returns: N.A.

This fund is different from most ELSS funds in its investing approach: it takes on more risks, sometimes even straying from the benchmark in a significant way, and invests predominantly in growth stocks.

The fund "remains a good choice for investors who can stomach its risks," says our Analyst Report.

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