Tax-Saving by Investing in this Top Performing Mutual Fund
As the year is coming to a close, most people are looking for options of tax savings on their returns and those opting for the old tax regime are searching for ways to save taxes under Section 80C. One of the best options available is equity-linked savings schemes (ELSS) offered by mutual funds. These schemes help you save taxes and grow your money over time.
ELSS funds have a lock-in period of just three years, making them a good choice for stock investments. Each SIP payment in an ELSS is locked for three years on its own.
The Parag Parikh Tax Saver Fund is one of the best options for investors with long-term financial goals. It has completed five years and has consistently delivered exceptional performance, making it ideal for both tax-saving purposes and achieving specific financial objectives in the distant future.
It has outperformed its benchmark, Nifty 500 TRI, over one, three, and five-year periods by 3-5% points. An analysis of the three-year rolling returns from July 2019 to December 2024 showed that the fund outperformed its benchmark 100% of the time. The fund had consistently returned more than 15% and 18% on a three-year rolling basis while returning more than 20% nearly 93% of the time during this period.
The average three-year rolling returns of the fund stood at a strong 24.8% during this period, while that of the Nifty 500 TRI was at 20.4%. Additionally, the SIP returns of the last five years have been exceptional, with an XIRR of 25.5%, making it one of the top performers in the category.
The performance metrics of the fund are its ability to balance risk and reward effectively. Its upside capture ratio of 85.2 means that it rises less than its benchmark during market rallies, while its downside capture ratio of 47.1 means it falls significantly less during market corrections. This balance gives investors stability without losing out on returns.
Value-Focused Investment Strategy
Value-driven investment strategies have been followed by this fund. The stocks in which it had an early mover advantage included ICICI Bank, Power Grid Corporation, ITC, HCL Technologies, and Bajaj Holdings. These have seen huge contributions towards the return since COVID. CDSL and CMS Info Systems – mid and small-cap stocks have played significant roles in building growth.
The portfolio has a large-cap bias, with 65-70% in large-cap stocks and over 12-13% in small caps. Some of the key sectors of the fund include banking and finance, IT, power, consumable fuels, and capital markets. Also, the fund maintains 15-19% of its portfolio in cash and debt, which cushions its risks during the decline in the market. It is surprising that this high cash allocation did not affect its performance negatively.
The Parag Parikh Tax Saver Fund’s consistent returns, value-oriented strategy, and balanced portfolio make it a strong choice for a variety of investors. This fund is a brilliant way to save taxes under Section 80C and is also a very good choice for long-term financial goals, especially if one is planning to invest in this for more than seven years. However, the benefit of deduction can be availed only up to Rs.1.5 lakh each year.
With its strong performance, smart risk management, and focus on value, this fund is a dependable option for saving taxes and building wealth over time.
