We study 41 ELSS funds to find out which of them have consistently outperformed the NIfty 200 Total Return Index (dividends included) using the Dec 2020 equity mutual fund screener.
Nifty 200 is a representative benchmark of the ELSS category in which funds are typically large cap oriented. since it is market capitalization-weighted, the index returns will be dominated by large cap stocks with a small contribution from Nifty Next 50 and mid cap stocks.
To evaluate performance consistency, we use rolling returns. That is, we shall compare every possible 1,2,3,4 and 5 year return periods possible from January 1st 2013 (from the inception of direct plans) to Dec 8th 2020.
As an example take, UTI – Long Term Equity Fund (Tax Saving) – Direct Plan – Growth Option. Out of 721 five year roll return data points, the fund secured a return higher than NIfty 200 TRI only 344 times. We use this to define a rolling return performance consistency of 344/721 = 48% (five years).
We have 41 active ELSS funds to start with. Among these Aditya Biral AMC has two funds. Aditya Birla Sun Life Tax Relief ’96 which is open for new transactions and Aditya Birla Sun Life Tax Plan which is not open for new transactions. We shall include the tax plan in the analysis as it might help existing unitholders.
- First, we shall find out how many of these 41 funds have a rolling return performance consistency of >70% over 5 years => only 21.
- Among these 21, only 16 have a rolling return performance consistency of >70% over 4 years
- Among these 16, only 14 have a rolling return performance consistency of >70% over 3 years
- Among these 14, only 10 have a rolling return performance consistency of >70% over 2 years
- Among these 10, only 7 have a rolling return performance consistency of >70% over 1 year
These are the funds. Among these only seven are open for investing.
List of ELSS funds with consistent performance
| Aditya Birla Sun Life Tax Plan – Direct Plan-Growth Option (not open for investments) |
| Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan |
| Axis Long Term Equity Fund – Direct Plan – Growth Option |
| BOI AXA Tax Advantage Fund-Direct Plan- Growth |
| DSP Tax Saver Fund – Direct Plan – Growth |
| Invesco India Tax Plan – Direct Plan – Growth |
| JM Tax Gain Fund (Direct) – Growth Option |
| Kotak Tax Saver-Scheme-Growth – Direct |
We can further investigate the investment risk. Particularly the risk when the index falls, also known as downside risk. There are many other ways to measure downside risk. We shall use the downside capture as a measure of downside protection in this study. How downside capture is computed: Study monthy returns over a given period (say 1 year or 3 years). Look at the fund returns for months when the index returns were negative. Compute CAGR of the fund and CAGR of the index only using these months.
Downside capture = CAGR of fund/CAGR of the index.
How we shall define downside protection: Let us take the example of a five-year window. We find out downside capture ratios (DCR) for every possible five year period from April 3rd 2006 to Dec 8th 2020. Suppose we have 2000 such DCRs.
Downside protection consistency = (no of DCRs < 100%)/(total no of DCRs)
This tells you the fraction of instances when the fund captured less than index losses over a given period (five years in this example). We shall define a downside protection consistency of 70% as “good”. That is 7 out of 10 windows an active fund is expected to fall less than the index.
From the above list, seven funds (except Axis) have greater than 70% downside protection consistency. Readers are advised to do their own research with due diligence before making investment decisions.
You can use the mutual fund screener to quickly create such lists from Value-oriented, Aggressive Hybrid, Dividend Yield, Large Cap, Focussed Funds, Large & Mid Cap Funds, Multi-Cap Funds, Sectoral/ Thematic funds, Mid Cap Funds, Small Cap Funds, Contra Funds.
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M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] comAbout freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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