We study 39 ELSS funds to find out which of them have consistently outperformed the NIfty 200 Total Return Index (dividends included) using the Jan 2022 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 period possible from January 1st 2013 (from the inception of direct plans) to 7th Jan 2022.
As an example take, UTI – Long Term Equity Fund (Tax Saving) – Direct Plan – Growth Option. Out of 986 five year roll return data points, the fund secured a return higher than NIfty 200 TRI only 496 times. We use this to define a rolling return performance consistency of 496/986 = 50.3% (five years).
We have 39 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.
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- First, we shall find out how many of these 39 funds have a rolling return performance consistency of >70% over 5 years => only 17.
- Among these 17, only 13 have a rolling return performance consistency of >70% over 4 years
- Among these 13, only 11 have a rolling return performance consistency of >70% over 3 years
- Among these 11, only 9 have a rolling return performance consistency of >70% over 2 years
- Among these 9, only 6 have a rolling return performance consistency of >70% over 1 year
List of ELSS funds with consistent performance
| 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 |
| Mirae Asset Tax Saver Fund-Direct Plan -Growth |
Please note that we have used a strict 70% cut off. There may be “good funds” with outperformance consistently a little less than 70%. The interested user may set their own criteria in the screener to create shortlists.
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 Jan 7th 2022. 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, three funds have greater than 70% downside protection consistency.
| BOI AXA Tax Advantage Fund-Direct Plan- Growth |
| Invesco India Tax Plan – Direct Plan – Growth |
| Mirae Asset Tax Saver Fund-Direct Plan -Growth |
Readers are advised to do their own research with due diligence before making investment decisions.
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