Which ELSS Fund Offers the Best Returns with Manageable Risk: Invesco India Tax Plan vs DSP Tax Saver

Introduction to ELSS Funds

Equity Linked Savings Schemes (ELSS) are mutual funds designed to provide tax reliefs under Section 80C of the Income Tax Act, India. These funds typically invest in a mix of equity and equity-related instruments, allowing investors to benefit from both the long-term growth in the stock market and the tax savings. This article will compare the performance and risk profile of two prominent ELSS funds: Invesco India Tax Plan and DSP Tax Saver Fund. We will also consider two other funds, Axis long term equity fund and Motilal Oswal long term equity fund, for a broader perspective.

Overview of Invesco India Tax Plan

The Invesco India Tax Plan is a fundamental ELSS fund that primarily focuses on equity investments, with a small allocation to debt instruments. This fund aims to provide tax-saving benefits along with long-term capital appreciation. Here are some key features:

Investment strategy: Focuses on equity and equity-related instruments with a long-term horizon. Asset allocation: 85-95% in equity and the rest in debt. Risk appetite: Fairly high due to equity exposure. Performance: Historically competitive, providing substantial returns over the long term.

Overview of DSP Tax Saver Fund

The DSP Tax Saver Fund is another popular ELSS option in the market. This fund is slightly different in its investment approach compared to Invesco India Tax Plan. Here are some of its key features:

Investment strategy: Balances equity and debt investments, with a focus on tax efficiency. Asset allocation: 70-95% in equity and the rest in debt, depending on market conditions. Risk appetite: Moderately high due to the equity component. Performance: Historically strong, especially during favorable market conditions.

Comparison with Axis Long Term Equity Fund and Motilal Oswal Long Term Equity Fund

For a more comprehensive understanding, we will also compare these two funds to provide a broader perspective on ELSS offerings:

Axis Long Term Equity Fund

Investment strategy: Focuses on long-term growth by investing predominantly in equity. Asset allocation: 80-90% in equity, with a minimal debt component. Risk appetite: High, designed for investors with a long-term investment horizon. Performance: Historically robust, offering strong returns.

Motilal Oswal Long Term Equity Fund

Investment strategy: Aggressive equity-focused fund with a slightly higher risk and return profile. Asset allocation: 85-95% in equity and the balance in debt. Risk appetite: High, suitable for aggressive investors. Performance: Historically impressive, with high volatility.

Evaluation of Performance and Risk

When evaluating ELSS funds, it is crucial to consider both performance and risk. Here is a comparison based on historical data and ratings:

Invesco India Tax Plan

Performance: Historically provided strong returns, especially over longer investment horizons. Risk: Fairly high due to the equity exposure. Conclusion: Suitable for investors willing to take on substantial risk for potential high returns.

DSP Tax Saver Fund

Performance: Historically strong, especially during favorable market conditions. Risk: Moderately high due to the equity component. Conclusion: A balanced option for investors seeking tax-efficient returns and moderate risk.

Axis Long Term Equity Fund and Motilal Oswal Long Term Equity Fund

Performance: Historically robust, with strong returns, especially in bull markets. Risk: High, suitable for aggressive investors. Conclusion: These funds are suitable for investors with a longer-term investment horizon and a high-risk tolerance.

Conclusion

The choice between Invesco India Tax Plan and DSP Tax Saver Fund depends on individual investment goals, risk tolerance, and financial circumstances. Invesco India Tax Plan offers high returns with higher risk, while DSP Tax Saver Fund provides a balanced approach with moderate risk. It is important to carefully evaluate your financial goals and risk appetite before making an investment decision. As with any investment, it is advisable to consult with a financial advisor before making a final choice.