Four ELSS Funds that have consistently outperformed Nifty 200

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: July 23, 2020 at 10:07 am

Here are four ELSS funds that have consistently outperformed the NIfty 200 Total Return Index (dividends included) in terms of both returns and risk.

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This list of ELSS funds was created using the July 2020 Equity Mutual Fund Performance Screener. You can use the 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.

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 mid cap stocks.

We shall consider 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 July 4th 2020.

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Take as an example, Canara Robeco Equity Taxsaver Fund – Direct Plan-Growth Option. This fund has got a better return than NIfty 200 TRI 608 out of 614 5-year return periods. This is a rolling return outperformance consistency of 608/614 = 99% over five years. We shall define a rolling return consistency of above 70% as “good” and pick ELSS funds that satisfy this criterion over 1,2,3,4 AND 5 year periods.

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 July 4th 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.

We considered 42 ELSS funds. Some of these are closed for new subscriptions as SEBI rules only permit one ELSS fund per AMC. We then filter funds with > 70% rolling return consistency and > 70% downside protection consistency.

  • Over 5 years: 22 funds qualify
  • Over 5 and 4 years: 17 funds qualify
  • Over 5,4 and 3 years: 14 funds qualify
  • Over 5,4,3 and 2 years: 9 funds qualify
  • Over 5,4,3,2 and 1 year: 4 funds qualify

Four ELSS Funds consistent outperformers

These are the final four funds.

  1. Aditya Birla Sun Life Tax Relief ’96 – Growth – Direct Plan
  2. DSP Tax Saver Fund – Direct Plan-Growth
  3. Invesco India Tax Plan – Direct Plan-Growth
  4. Tata India Tax Savings Fund-Growth-Direct Plan

Readers are advised to do their own research with due diligence before making investment decisions.

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Pattabiraman editor freefincalDr 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. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
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