Top performing ELSS funds in 2021

The year 2021 was full of action, with markets rallying and some profit booking towards the end. Here is a list of the top five performing ELSS in 2021.

Equity-Linked Saving Schemes (ELSS) are well-known for tax benefits under Section 80C of the Income Tax Act. You can get a tax deduction of up to Rs 1.5 lakh if you invest in ELSS. The best aspect about ELSS is that they invest in equities, making them one of the best wealth-generating instruments with tax benefits. 

Furthermore, its three-year lock-in term is one of the shortest among all qualified investments. In fact, the three-year lock-in period benefits the fund manager since it allows him to hang on to companies in which he has greater conviction without fear of redemption pressures. As a result, they are assisting in the long-term creation of wealth. 

Image Source: Kotak Mutual Fund 

Equities in 2021 were teeming with activity, and markets were upbeat. Since mid-October 2021, the markets have been trending southward. However, short-term challenges should not derail your long-term financial objectives. As a result, in order to get the greatest benefits from ELSS, investors need to commit to a long-term investment strategy. 

Performance of ELSS funds in 2021 

To determine the best performing fund in 2021, we used net asset value (NAV) data from January 2021 to the present. In this case, we would be looking at three-month rolling returns in comparison to its benchmark and category. Because the majority of ELSS funds track the Nifty 500 TRI, we used it as the study's benchmark. Furthermore, we would consider the risk as represented by the maximum drawdown. 

The graph above depicts the three-month average rolling returns of the top five performing ELSS funds, as well as the category average and benchmark. All five of these funds performed admirably in 2021. However, this does not guarantee that they will perform well in the future. Let us now examine its risk-adjusted performance. 

The graph above depicts the risk as assessed by maximum drawdown during the research period. Except for Mahindra Manulife ELSS Kar Bachat Yojana, all other funds performed better in terms of risk. So, while the rewards on Mahindra Manulife ELSS Kar Bachat Yojana are great, the risk is also substantial. However, in the case of other funds, they have managed to provide returns that are higher than the category average and benchmark while undertaking less risk. 

That being said, while choosing ELSS funds, consider the fund manager's tenure, the fund's portfolio, asset allocation, investment style, investment strategy, and long-term performance consistency. Because this will be the decider of the fund's future performance.