TOP 5 ELSS Funds
ELSS funds provide the best of both worlds. They help us to save on tax as well as provide the benefit of equity investing. Here are then five cherry-picked ELSS funds to help you in your investment journey
The last couple of weeks of the year-end and the first couple of weeks of a new year are very busy for most of us. It’s a wakeup call for taxpayers to start the search and invest in tax-saving instruments before the fiscal year ends. We keep receiving mails from our HR Department to submit investment proofs.Those who follow DSIJ regularly know that we understand their dilemma and hence as per our yearly exercise, we have come up with five funds that will not only help you in saving tax but also increase your wealth over the years to come. The question that you may well ask is: Out of umpteen options why ELSS is preferred over others?
There are various other instruments that can provide us with tax-saving benefits available under Section 80C of IT Act. Why not invest in PPF, NSC, ULIPs, bank fixed deposits, etc.? The answer is that ELSS funds provide the best of both worlds. They help us to save on tax as well as provide the benefit of equity investing. The likes of PPF, NSC and others carry lower risk but come with fixed coupon or interest rates. In a low-rate environment, some of these options do not even cover the current higher inflation rate. With this you end up with lower returns on your investment as compared to ELSS even in the long run.
Let us understand with an example: If you had invested Rs 1 lakh each in NSC certificates and an ELSS scheme five years back, your money would have grown to Rs 1,43,562 at 7.5 per cent annualised rate in NSC (interest rate for NSC is revised every quarter and currently it is at 6.8 per cent). In case of ELSS, your money would have multiplied to Rs 2,06,170 at 15.57 per cent (annualised average ELSS category return) in the same period. The difference is clearly visible as we see that in five years the return by ELSS is 60 per cent more than what NSC earned in the same period. Nevertheless, one must keep in mind that ELSS funds carry higher risk and are more volatile as compared to other tax-saving avenues.
Looking at historical data,we see that in the long run ELSS has given better returns that can beat inflation and hence ELSS stands out as the best tax-saving product. There are other reasons also that give ELSS an edge over other tax-savings instruments such as lower lock-in period of three years. It is much lower than the six years and 15 years in case of NSC and PPF instruments, respec- tively. Lower lock-in period makes it self-sustaining within three years. The following table gives a glimpse of different instruments that fall under Section 80C of the Income Tax Act on different parameters:
In the following paragraphs we will cover the top five funds selected on the basis of consistency of returns both in short term as well as long term. In terms of risk of fund, we have analysed the draw-downs of the funds. Lower the better. Considering one’s risk profile, investors can select one or more schemes from the list of five funds that we have cherry-picked. However, investors should select not more than three schemes, as tracking performance and churning of portfolio post the lock-in period may become a hectic and time-consuming affair. Besides, it does not offer the benefit of diversification.
DSP Tax Saver Fund - Direct Plan| Growth Option
Here comes a fund that has done amazingly well in short as well as in long duration. It has remained in the top quartile in the ELSS category in the last five years. In the last five years, the fund has generated return of 18.11 per cent annually. It has a decent long-term track record where it has managed to beat the category returns on a consistent basis. The fund went through a rough patch during 2017 and 2018 but has made a major turnaround in the last one year and has outpaced its category by 481 basis points. Since its inception in 2013 it has pleased its investors with over 17.84 per cent annualised return: that means if you had invested Rs 1 lakh in this fund since its inception, your investment would currently fetch you over Rs 3.78 lakhs as of now. In the one and threeyear period, the fund has outperformed its average category returns by 514 and 446 basis points. The main reason behind such a performance is its tactical allocation across sectors,stocks and market-caps. The fund manager in the last one year has made all the right moves to get the fund’s performance on the right track. At the end of November 2021, the fund’s sectoral portfolio seemed concentrated as the top three sectors were financials, technology and construction, which together contributed about 53.56 per cent of the total assets of the fund. While 55 stocks portfolio seemed quite diversified, the top 10 holdings contributed 43.07 per cent of the total assets.
Considering the fund’s performance over the years, and its asset allocation strategy, investors with moderate to high risk-taking ability can take exposure in this fund.
Axis Long Term Equity Fund - Direct Plan | Growth Option
If you are one of those conservative investors who are looking out for a fund with proven stability and decent track record, then your search ends here. Axis Long Term Equity Fund is the best suited fund for such investors as it has one of the lowest beta of 0.89 in its category (category average of 0.97) and one of the highest Sharpe (risk-adjusted returns) ratio of 0.78 (category average of 0.64). The lower beta is a resultant of the predominant large-cap allocation. At the end of November 2021, the fund had allocated almost four-fifths of its portfolio into large-cap stocks.
However, such allocation has capped the fund’s performance during the bullish phase of 2017 and year till date wherein the mid-cap and small-cap stocks outperformed its larger peers. That said, the buy and hold strategy stands good doubled with lower portfolio volatility that gels well for the low-risk genre of investors. At the end of November 2021, large-cap stocks contributed almost 80 per cent of the fund’s equity portfolio compared to 68 per cent, the category average.
It held a little concentrated portfolio of 34 stocks with the top 10 stocks accounting for 64.62 per cent of the net assets. The fund’s top three sectors, namely, financials, services and technology contributed 61 per cent of the net asset in totality. The fund is managed by Jinesh Gopani since 2011 who has ensured stability and consistency in the fund’s management and performance. At Axis MF, Jignesh also manages equity funds such as Axis Value, Axis ESG and Axis Focused, among others. Overall, his tenure performance is 17.67 per cent compared to 12.52 per cent by the index in the same period. Thus, low-risk investors can take larger exposure to this fund.
Invesco India Tax Plan - Direct Plan | Growth Option
Invesco India Tax Plan is one of the most consistent performers in its category. Except for the last one year it has remained in the top two quartiles in terms of performance. It has been included in our top five ELSS funds list mainly due to a stunning performance over the longer period. While in the last one year it managed to beat the category returns by 91 basis points, in the last 10 years it has been able to beat the category average. In the last five years, the fund has been in the top league of the ELSS category in 2020, 2019 and 2018; however, 2017 had been very ordinary where it underperformed the average category performance.
The scheme’s performance has been extremely encouraging especially in protecting the downside when markets have been falling. This is largely due to high exposure to large-sized companies which provides consistency in its performance. In 2018, when the category and index both generated negative returns, the fund was able to give marginal positive return. Even for the March 2020 quarter it outperformed its peers as well as benchmark. This is also reflected in the lower max draw-down of the fund, which stands at 25.35 per cent compared to 27.51 per cent of category and 28.57 per cent of benchmark.
The scheme’s fund managers, Amit Nigam and Dhimant Kothari, follow a very value-conscious portfolio which has strong diversity in terms of sectors, too. The portfolio is overweight on cyclical, where it holds almost 50 per cent of its portfolio. This is likely to do well going ahead as the economy picks up pace. In terms of sectoral allocation, the fund is overweight on financial, energy and automobile. An investor with low to moderate risk appetite can take limited exposure to this fund.
Mirae Asset Tax Saver Fund - Direct Plan | Growth Option
Launched in December 2015, it’s one of the youngest funds in its category. However, it has one of the highest assets under management (AUM). At the end of November 2021, the fund had AUM of Rs 10,087 crore. The reason for such higher AUM in such a short span of time is due to its consistent performance since its launch. The fund has managed to beat the category returns on a consistent basis and has outdone the average category by 692 and 735 basis points in three years and five years, respectively. Even in the shorter period of one year the fund has performed better than its peers and benchmark. In the last one year the fund has generated return of 32.41 per cent. The fund has a large and mid-cap orientation, which together form more than 90 per cent of the net assets of the fund. This scheme is well-diversified with 61 stocks at the end of November 2021. Earlier the fund manager had a concentrated portfolio for the fund; however, now it has more stocks in its portfolio than the median stocks in the category. The fund is being managed by Neelesh Surana since its inception. Financials, information technology and automobile are the top themes the fund plays on. Even in these themes, the fund manager has invested in dominant players from these sectors which, to a large extent, ensure that the portfolio is relatively stable. For example, among financials it has invested in HDFC Bank, ICICI Bank and State Bank of India. In information technology it has invested in Infosys and TCS. The fund has one of the best capture ratios, which means the fund is good at capturing the upside in the market and at the same time it falls less when the market falls. All these factors make it a healthy fund to invest in among the tax-saving funds.
Canara Robeco Equity Tax Saver Fund - Direct Plan | Growth Option
Canara Robeco Equity Saver Fund remains one of the worthy choices in the tax-saving category. The reason for such a choice is its performance across various market cycles. The fund has delivered 37.78 per cent, 23.57 per cent and 20.84 per cent annualised returns against the category average of 34 per cent, 17.63 per cent and 16.48 per cent, respectively, over one, three and five-year periods. The fund has gone through rough phases in 2015, 2016 and 2017; however, after that it started performing and remained in the top two quartiles in terms of performance for the next four years including 2020 and 2021. The fund is being managed currently by Shridatta Bhandwaldar and Vishal Mishra. Shridatta took over the reins on October 2019 following which the fund has remained in the top two quartiles in terms of performance. Besides the calendar return, the fund has also displayed a strong winning consistency with its three, five and ten-year daily rolling returns, which are better than the benchmark. The fund has a well-diversified portfolio of fundamentally strong companies with growth style of investing. The fund is large-cap-biased and invests up to 80 per cent in large-cap stocks. Currently the fund has invested in 58 stocks and its top 10 stocks form 45.47 per cent of the portfolio. The fund has a flexible investment strategy with no sector or theme bias, which allows it to run an unconstrained portfolio. As of November 30 the fund was overweight on finance, technology and construction. In terms of individual holdings, Infosys forms the highest share of the fund’s net assets followed by HDFC Bank and ICICI Bank. Looking at the balanced portfolio it makes a suitable choice for an investor with a moderate risk appetite.
