Best Tax Saving Mutual Funds to Invest in 2023

Best Tax Saving Mutual Funds to Invest in 2023 

Every year I used to look at the 5-star ratings and study the best trailing-return generators for the last 3 years, and 5 years and select a tax-saving mutual funds to invest in for that year. But next year, to my horror, I used to discover a new set of tax-saving mutual funds at the top of the list and I used to invest there. And this exercise continued year after year. My search for the best ELSS became eternal and I ended up collecting a lot of mutual funds. Then I decided to dive deep into historical data and ponder - What is best? Why am I perpetually unhappy?

Jack Bogle, founder of Vanguard and credited for the introduction of Index investing, once said all performance should be measured in terms of a decade and nothing short of a decade. Hence 10 years of a comparative study of consistency vis-a-vis trailing returns.

For the analysis, I have used performance data for the last 10 complete years meaning starting 01-Jan-2013 to 31-Dec-2022. Data points are collected from Value Research and Money Control. Used regular plans as direct funds were introduced much later and 10 years of performance data were unavailable. Funds that don’t have 10 years of performance data are not considered.

👉 Am I among those who consider funds that gave stellar annualized returns in the last 10 years to be the best?

Here is a list of the funds that generated the most annualized return over a decade. Condition used is above 80 percentile of 10 years of Trailing Ret(%).

👉 Am I among those who consider funds that consistently performed year after year for the last 10 years to be the best?

Here is a list of funds that are found to be in the Top 2 quartiles in 8 years for the last 10 years.

💡 Shockingly I finally realized, there is no intersection. Those who gave stellar returns in the long term are not top-ranked in terms of consistency. And conversely, top-notch consistent performers are not top trailing return generators.

➢ Learning 1: We expect high-return generators to be consistent and perform consistently in all market cycles. Not going to happen. We invest in Mutual Funds lured by their Trailing Returns and start whining the year it gives a below-average performance. Consecutive two flat years, we sell invariably not realizing market cycles and we make sure that we get an underwhelming overall return.

➢ Learning 2: Those who have problems with frustration management could invest in consistent funds. They would not have the problem of premature selling. However, those who obsess about consistent returns/ rolling returns, invariably compromise on long-term superior return generation in the want of constant performance.

➢ Learning 3: If we agree to compromise a little on both trailing annualized return and consistency, we might strike an optimum balance and get decent consistent performers with above-average returns. However, there is no perfect balance, it depends on the personality trait of an individual.

$ Lowered Return expectation (avg. yearly return) from top 80 percentile to top 70 percentile- just a notch
$ Top 2 Quartile Return Generation for at least 7 discrete calendar Years (rather than 8 Years) out of a total of the last 10 Years.

Now, we have 4 funds to choose from. This is a sweet spot for most, the proverbial "Best of Both Worlds".

§ Quant Tax Plan, DSP Tax Saver, and Axis LT Equity are more into the superior long-term return and are decent but not superb in consistency.

§ JM Tax Gain is more consistency oriented however it provided above-average if not top-notch annualized returns.

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* Discrete yearly returns and 10-year trailing returns are as seen at Valuer Research Online and Money Control respectively.

* Used data for the last 10 complete years meaning starting 01-Jan-2013 to 31-Dec-2022

* Included NIFTY 500 TRI for benchmarking purposes only.

Not a perfect balance for you? How do I get all these tables? How can I get these stats for the ELSS where I invest?

Go to my Tableau Public dashboard page and play around with data to discover "Best for you ELSS" and NOT "Best ELSS". Go full screen on a monitor/ laptop for the best immersive experience. All the screenshots are from there. Built by “Yours Truly”.

https://public.tableau.com/app/profile/avishek.bhattacharya8170/viz/BestELSSMutualFunds2023India/MyBestELSS

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Please don’t complain saying why is no Parag Parikh Tax Saver, or Mirae Tax Saver? They don’t have 10 years of performance data available. Once upon a time, Motilal Oswal was also a new entrant instant super hit. Now time is different. Consistency and performance over the long term is a different ball game.

So much is my obsession with decade-long performance study, I used regular plans return numbers as direct funds were introduced much later in 2014. However, for investing one should always use Direct Plans.