Best ELSS vs Best Mid-cap Mutual Fund: Which fund would have given you more returns?

Best ELSS vs Best Midcap Mutual Fund: People invest in mutual funds as they diversify their investment not just in a fund but in a set of multiple stocks that may give stability to their investment portfolio.

The other reason why investors are increasing their investments in mutual funds is because they have given good returns in the last few years in sync with stock market returns.

While the primary aim of all mutual funds is to get market-linked returns, Equity Linked Saving Scheme (ELSS) funds stand out as they also provide tax exemption up to Rs 1.50 lakh under Section 80C of the Income Tax Act.

Equity mutual funds such as small, mid, and large caps are not used as tax savers, but long-term capital gains (LTCG) up to Rs 100,000 per financial year from them are not taxed.

ELLS, on the other hand, are not restricted from giving tax benefits.

A cursory glance at the mutual fund returns in the last three years, as per Value Research data, shows that while large, mid, and small caps have given returns of 17.29 per cent, 26.94 per cent, and 33.25 per cent, respectively, ELSS funds have given returns of 19.74 per cent in the same duration.  

In this write-up, we calculate the total earnings from the best mid-cap and best ELLS in three years with a Rs 10 lakh lump sum investment in each.

Best ELSS mutual fund in 3 years

The best ELSS in the last three years has been Quant ELSS Tax Saver Fund.

It functions under the benchmark of the NIFTY 500 Total Return Index.

The fund has given 36.20 per cent returns in the 3 years. The NAV size for the fund is Rs 376.2054. 

Best mid-cap mutual fund in 3 years

The best mid-cap mutual fund in the last three years has been Quant Mid Cap Fund, which has its benchmark as the Nifty Midcap 150 Total Return Index.

The returns from the fund in the last 3 years have been 40.28 per cent. Its NAV as of now stands at Rs 40.28 per cent. 

Best ELLS vs Best Midcap Mutual Fund

For calculation, we are taking a Rs 10 lakh lump sum investment in each of the funds for three years.

The 10 lakh figure can give us a clear idea of returns, tax exemption on LTCG, total returns, and earnings after tax. 

Best ELLS vs Best Midcap Mutual Fund Calculations

Had one invested Rs 10 lakh in a lump sum in Quant Mid Cap Fund three years ago, their LTCG at the rate of 36.20 per cent annualised returns would have been Rs 1489423.50, while the total returns would have been 2489423.50.

Since one gets a Rs 1 lakh tax exemption on mutual fund LTCG earnings, the taxable income would have been Rs 1389423.50.

Mutual fund LTCGs are taxed at a rate of 10 per cent.

Calculations

With that condition, the total tax one would have paid on that income would have been Rs 138942.350.

It means the total earnings on that investment would have been (Rs 1489423.50-Rs 138942.350)= Rs 1350481.15.  

Here, one should keep in mind that the investment of Rs 10 lakh in an ELSS fund would have helped you save Rs 1.50 lakh in income tax filing.

In that way, your earnings would have been Rs 1500481.15.

Now come the best mid-cap earnings calculation.

Had one invested Rs 10 lakh in a lump sum in Quant Mid Cap Fund three years ago, their total returns at the rate of 40.28 per cent would have been Rs 2760757.41.

Total LTCG have been Rs 1760757.41.

Taxable income would have been Rs 1660757.41 after Rs 1 lakh tax exemption on LTCGs.

At the rate of 10 per cent LTCG, they would have paid Rs 166075.741 in income tax.

After income tax, their income would have been Rs 1760757.41-Rs 166075.741= Rs 1594681.669.

Looking at both calculations, we can see that a Rs 10 lakh investment in the best mid cap would have helped you earn more money than with the same investment in 
the best ELLS fund.

However, mutual funds are related to market risk. Before investing in a mutual fund, do your due diligence or talk to an expert.