Comparative Analysis of Top 5 ELSS Schemes 2016

Here is a comparison of Top 5 ELSS Schemes 2016:

Top ELSS Schemes of 2016Equity-Linked Saving Schemes (ELSS) are one of the best tax saving avenues that would help you generate a sizable corpus to meet your long term goals. These are open-ended diversified equity mutual fund schemes that have a lock-in period of 3 years. Investment in ELSS can be started with monthly SIPs of as less as Rs 500. SIPs are a convenient and disciplined way to invest wherein you get the benefit of rupee cost averaging. Remember that every SIP would be subject to the three-year lock-in period individually. Such contributions can be claimed as a tax deduction up to a maximum limit of Rs 1.5 lakh per annum under Section 80C of Income Tax Act. Moreover, upon exiting the fund after three years, the capital gains will be tax-free in your hands. There are no entry or exit loads in ELSS funds.

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Now you may have convinced about ELSS as good retirement planning tool, its time to have a look at various ELSS funds available in India and select one to make an investment. Your selection process should involve analysis of not only qualitative factors but also quantitative factors. Qualitative factors consist of fund history and asset allocation. Quantitative factors include financial ratios and expense ratio.

I have used the following criteria to shortlist ELSS funds for an in-depth analysis:

– Initially, top 25 funds that gave the highest 5year returns were shortlisted out of all the ELSS funds. Tenure of fewer than five years may be quite misleading. When you make a selection, you can go for even longer period returns like 10-year returns.
– Performance history of at least 5-10 years was considered to make sure that the fund has faced all kinds of bearish and bullish phases.
– Regular plans with growth option have been chosen for further analysis. Usually, ELSS are available with three options namely growth, dividend payout and dividend reinvestment. It is better to choose growth option wherein the dividends are reinvested in the fund.
– Expense ratios were given due consideration because a lower expense ratio translates into higher returns for the investor. But it should not be considered as a standalone measure. Ideally, those funds were selected that have a low expense ratio as compared to funds with higher expense ratios.
– For ensuring scientific selection, financial ratios have formed an indispensable part of the process. Downward Capture Ratio (DCR), Standard Deviation, Sharpe Ratio, Sortino Ratio, Beta and Alpha were used in quantitative analysis. DCR provides insight into the ability of the fund to contain losses to the minimum when the indices fall. Sharpe Ratio and Sortino Ratio provide understanding whether the fund would be able to generate higher rewards for taking greater risks.
– Standard Deviation is a measure of absolute volatility of returns with respect to the average returns. A higher standard deviation of the fund means the possibility of variation in the returns is greater in positive as well as negative direction. Beta is a measure of the relative volatility of returns with respect to the benchmark returns. Just like Standard Deviation, a high beta translates into high risk inherent in the particular investment vehicle. Alpha values indicate the how much excess return the fund can generate over the benchmark returns. It shows the value added by the fund manager in the overall performance of the fund. Ideally, alpha of a fund should be greater than the expense ratio.
– Asset Allocation of the ELSS fund has been given due regard at the time of qualitative analysis. An ELSS fund composed majorly of large cap stocks is deemed stable and suitable because there won’t be high volatility in returns during turbulence in the markets. Conversely, funds that have higher allocations in mid-cap & large-cap stocks are considered risky but at the same time tend to give higher returns during bull runs.

After employing the criteria mentioned above, following top 5 funds have been arrived at as shown in the table below:

Comparative Analysis of Top 5 ELSS funds in 2016

Based on fund history, you may consider Franklin India Taxshield Fund & ICICI Pru Long Term Fund as these are the oldest and most resilient funds of all. Owing to fool proof growth strategy, these have been adept at containing losses in the bearish markets of 2008 & 2011. Accordingly, in the bullish markets of 1999, 2003, 2007 & 2009, they have given returns matching the benchmark. On the other hand, Axis Long-term equity is the youngest fund of all and has escaped the bear phase of 2008. But it could contain losses in 2011. Moreover, during the bull runs, it was able to outperform the benchmark. However, it seems Reliance Tax Saver Fund had a rough time in keeping a check on losses during the bear runs. But during the bull runs, it has been aggressive to outperform the benchmark.

An inter-fund comparison over the three-year period shows that Reliance Tax Saver Fund has given the highest 3-year returns at 35.8% while Axis Long-term Equity Fund was the winner in the 5-year period with 20.51% returns. Regarding consistently high returns, Axis Long-term Equity Fund may be the best pick to invest in ELSS funds. After that, Franklin India Taxshield Fund and DSP BlackRock Tax Saver Fund have given higher returns.

On the expense ratio count, Axis Long-term Equity Fund qualifies to be an ideal fund with the lowest expense ratio. Then, Reliance Tax Saver Fund and ICICI Prudential Long Term Equity Fund (Tax Saving) may be looked upon which have the next lowest expense ratios.

Also read: ULIP Vs ELSS/Mutual fund: which is a better investment?

Although it has given the highest return, Reliance Tax Saver Fund has the highest SD among all the five funds highlighting the aggressive nature of the fund. It means that your chances of gaining more are high but at the same time losing more are also high. Axis Long-term Equity Fund and Franklin India Taxshield Fund have the lowest SD of 14.36 and 14.83 respectively which makes them low-risk grade funds on the riskometer.

Beta value ideally needs to be matched with your risk appetite. Reliance Tax Saver Fund & DSP BlackRock Tax Saver Fund have a very high beta value of 1.27 & 1.03 respectively which makes these high-risk grade investments. It means if the benchmark goes up by 1 then the fund goes up by 1.27 times but if benchmark goes down by 1, then the fund returns would fall by 1.27 times. Then, Franklin India Taxshield Fund & ICICI Prudential Long Term Equity Fund (Tax Saving) have low beta values which make these moderately risky on the riskometer.

With the highest Sharpe ratio of 1.65, Reliance Tax Saver Fund can be perceived as an ideal fund for the high risk-reward tradeoff. It means that on one unit of risk taken by you; it will give 1.65 times returns. Conversely, having next highest Sharpe ratios, Franklin India Taxshield Fund & ICICI Prudential Long Term Equity Fund (Tax Saving) would provide above average returns on every unit of risk undertaken.

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With the highest Sortino ratio of 2.44, Axis Long-term Equity Fund gives you 2.44 times returns as compared to all other funds. On the contrary, Franklin India Taxshield Fund is an average return-low risk grade fund that will give you 2.31 times risk-adjusted returns.

Based on Alpha, you may pick Axis Long-term Equity Fund having the highest alpha value of 15.30. Then, you may go for Reliance Tax Saver Fund & ICICI Prudential Long Term Equity Fund (Tax Saving) having the next highest alpha values.
Based on asset allocation, for low risk-average returns, ICICI Prudential Long Term Equity Fund (Tax Saving) & Franklin India Taxshield Fund are ideal funds as these are 60-70% made up of large-cap stocks. On the contrary, Reliance Tax Saver Fund is a high risk-high return fund that has higher allocations in mid-cap & small-cap stocks which enable it to outperform the benchmark consistently in bull phases.

Final Words

Relatively high-risk seekers may invest in Reliance Tax Saver Fund which follows an aggressive investment strategy and gives high returns as well. DSP BlackRock Tax Saver Fund offers above average risk with average returns. Franklin India Taxshield Fund & ICICI Prudential Long Term Equity Fund (Tax Saving) provides comparatively moderate or average risk and above average returns. Finally, Axis Long-term Equity Fund falls in the category of low risk-high returns.

Mutual Fund Investments are subject to market-risks. Please consult your financial adviser before investing.

Also read: Choosing between PPF, NPS & ELSS

About the author

KishorKumar Balpalli, believes that financial literacy and discipline is the key to one’s financial freedom. KishorKumar is a Certified Financial Planner, Personal Finance Blogger & the Founder of an award-winning Wealth Management platform. myMoneySage simplifies investing for individuals and amplifies business growth for Registered Investment Advisers by leveraging Artificial intelligence and machine learning. The AI of the machine plus the intellect of the human advisor enables comprehensive & client-centric advice at a fraction of the cost of a conventional adviser. is an award winning personal finance platform. It helps you aggregate all your personal finance accounts like FD, Equity, Mutual Funds, PPF EPF, NPS including, Credit Cards & Loans etc. It's one place where you can track, plan and invest seamlessly. empowers you to invest in zero commission direct plans of mutual funds thereby helping you generate higher on investments. The best part is it comes with a lifetime Free plan.

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