An update on ELSS tax saver mutual funds

I did a post about some of the better performing ELSS tax saver mutual funds in January this year, and I thought I would revisit those funds to see how they fared during these tough market conditions.

I wanted to see if there was any big variation between these funds, and if there was any way to predict some of that variation at the beginning of the year.

First, the original list of ELSS mutual funds that were around for 5 years or more and had performed well.

Keep in mind that these returns are for a 5 year period ended in January 2011.

Name Inception Date 5 year returns Expense Ratio
Birla Sun Life Tax Relief – 96 March 1996 16.57% 1.96
Canara Robeco Can Equity Tax Saver March 1993 22.31% 2.38
HDFC Tax Saver March 1996 17.80% 1.86
ICICI Prudential Tax Plan August 1999 15.48% 1.98
SBI Magnum Tax Gain Scheme – 93 March 1993 16.32% 1.78
Principal Personal Tax Saver March 1996 16.42% 2.19
Franklin India Tax Shield April 1999 17.34% 2.10
Sundaram Tax Saver Nov 1999 17.73% 1.96
Sahara Tax Gain March 1997 22.31% 2.50
Reliance Tax Saver August 2005 15.14% 1.88

I had deliberately kept the list in no particular order because as soon as you order it according to something – say the highest returns – the brain starts telling you that the first fund is the best, and the last fund is the worst – which is what I wanted to avoid.

Now, let’s take a look at how these funds performed in the last 1 year.

Name Inception Date 1 Year Returns Dec 3 2011 Expense Ratio
Birla Sun Life Tax Relief – 96 March 1996 -23.21% 1.96
Canara Robeco Can Equity Tax Saver March 1993 -10.95% 2.33
HDFC Tax Saver March 1996 -17.28 2.07
ICICI Prudential Tax Plan August 1999 -15.14 1.98
SBI Magnum Tax Gain Scheme – 93 March 1993 -17.06 1.81
Principal Personal Tax Saver March 1996 -22.35% 2.22
Franklin India Tax Shield April 1999 -8.26% 2.07
Sundaram Tax Saver Nov 1999 -18.43% 1.95
Sahara Tax Gain March 1997 -16.33% 2.50
Reliance Tax Saver August 2005 -19.31% 1.89

All data from Value Research

There is quite a lot of variation in this list, and the Sensex has returned -17.50% in this time period so anything near that number is what you would expect.

The only two funds that were markedly better in this comparison were Canara Robeco Tax Saver and Franklin India Tax Shield.

So, why did these two funds do so well?

I looked at the portfolio of Canara Robeco Tax Saver and Bharti Airtel is their biggest holding with 7% weight in the portfolio, and that stock has returned about 12% in the last year and I think that one stock had a lot to do with Canara’s good performance.

In Franklin India Tax Shield’s portfolio – I see that Infosys is the biggest component at 8.5% which fell only 5% in the last one year period, then Bharti Airtel is the second biggest component at 7.5%, and ICICI Bank is the third largest component which fell 33% in the last year! They also hold Idea Cellular which was just 1.49% of their portfolio in March but grew to 3.5% of the portfolio by September. Idea Cellular has risen about 37.50% in the last year.

Frankly, I’m having trouble explaining why they did so well in hindsight, so it’s pretty clear to me that I could have never picked these two mutual funds at the beginning of the year to say that they will be ones that will perform better than the rest.

So, yes, there was variation, but there is nothing that I can see which would have indicated at the beginning of the year which funds would do well and which won’t.

Finally, let’s place the best performers in both time periods in one table and look at them side by side.

As on Jan 2011

As on Dec 2011

Name 5 year returns Expense Ratio Name 1 Year Returns Dec 3 2011 Expense Ratio
Canara Robeco Can Equity Tax Saver 22.31% 2.38 Franklin India Tax Shield -8.26% 2.07
Sahara Tax Gain 22.31% 2.5 Canara Robeco Can Equity Tax Saver -10.95% 2.33
HDFC Tax Saver 17.80% 1.86 ICICI Prudential Tax Plan -15.14% 1.98
Sundaram Tax Saver 17.73% 1.96 Sahara Tax Gain -16.33% 2.5
Franklin India Tax Shield 17.34% 2.1 SBI Magnum Tax Gain Scheme – 93 -17.06% 1.81
Birla Sun Life Tax Relief – 96 16.57% 1.96 HDFC Tax Saver -17.28% 2.07
Principal Personal Tax Saver 16.42% 2.19 Sundaram Tax Saver -18.43% 1.95
SBI Magnum Tax Gain Scheme – 93 16.32% 1.78 Reliance Tax Saver -19.31% 1.89
ICICI Prudential Tax Plan 15.48% 1.98 Principal Personal Tax Saver -22.35% 2.22
Reliance Tax Saver 15.14% 1.88 Birla Sun Life Tax Relief – 96 -23.21% 1.96

There is very little similarity between one and the other – what did well in the first five year period didn’t necessarily do as well in this year. Perhaps the one fund that catches the eye is Canara Robeco Equity Tax Saver because it is near the top for both these time periods, but it’s anybody’s guess if it would continue with it’s good performance or not.

If I had to pick up a tax saver mutual fund – I would pick two or three out of this list, but I don’t think it is possible to narrow it down any further.

27 thoughts on “An update on ELSS tax saver mutual funds”

  1. There is 1 thing quite confusing in the whole article. When you say a mutual fund “Birla Sun Life Tax Relief – 96” had returned 16.57% during last 5 years, it nowhere mentions that this is the absolute return over a period of 5 years and not the Year-on-year return. So its basically a NAV of 59 going up to 69. I think its even worse then putting money in an FD with just 5% RoI. Might be a good article on ELSS but its helpfulness from investing perspective, is doubtful.

  2. but is there any guarentee or any expectation that we can have on ELSS can give returns greater than 15% in a 3-5year period.

    one more point if i want to invest in HDFC tax saver fund whom i need to contact; Will HDFC is the authorized person to contact to invest the amount?

    1. Hi Bhanu Kiran,

      ELSS is as good as any mutual fund with 3 years lock-in period. Meaning, you can get your money back only after 3 years (if you want tax rebate, the whole purpose of investing in ELSS).

      It invests mostly in equity/stock markets, which is inherently risky and you cannot guarantee any returns in it. It can go down as well. As there is risk associated with it, the returns may also be higher. So, there is obviously no guarantee.

      To invest in HDFC tax saver, you can go to their website and contact them directly and someone will reach you. Otherwise, there are many sites like which aids you investing in mutual funds directly online.

    2. Manickkam gave a very detailed and accurate answer and I just want to add that there is NO guarantee of any sort in ELSS. It can give you minus 50% in 3 years also if the stock market goes down.

      If you’re not comfortable with this idea then you should not invest in ELSS funds.

    1. It is Direct Tax Code and it is meant to be something which will replace the current set of tax rules. The way it is written currently, it doesn’t include the tax saver mutual funds, and if it is implemented like this then tax saver mutual funds will not give you any tax benefit from whenever it is implemented.

      1. ok manshu; can you brief me ON ELSS returns which is shown in negative percentages and what does it means and how returns on elss are caluculated
        thanks for ur assistance.

        1. IT means that there is a loss. If you invested 100 rupees and the return shows -10% – at the end of the term you will get Rs. 90 only. Returns are calculated based on the share prices that elss mutual funds own. If share prices go down then ELSS can also go down.

          There is absolutely no guarantee that the ELSS prices will not go down and that’s a big risk that you have to recognize before investing in them.

  3. Quite true. Fee is the main reason for active funds. And distributors too get a hefty 4-5%. I do not think DTC will be shelved in toto. A much watered down version that ruffles no feathers could see the light of the day.

  4. I have always wondered why there are no index based ELSS (are there any? Templeton had one earlier). Indexing would best suit ELSS because the investor, who does not have an exit route for 3 years, would be assured of at least the index returns. No need to predict winners and no post purchase dissonance. And the lock in hasn’t really helped ELSS returns as claimed by fund houses as they tend to claim (talk of stable AUM, no redemption pressure etc).

    But with ELSS facing extinction in the DTC era, this may only be an academic interest.

    1. Never thought about that but probably because funds can charge a higher management fee by launching an actively managed fund. Looking at how things have progressed I won’t be surprised if they shelve DTC also.

  5. Probably, its because of the lock-in in ELSS. One can’t forget the SBI Magnum Taxgain and its popularity it had during 2006 and 2007.

    Now, Fidelity Tax advantage fund managing 1182.87 Cr is one of the leading ELSS fund. It invests in large-cap and has outperformed all its peers during the bear market and has given good returns even during the bull run.

    I took it up on April-2011 and see below for more details.

    1. I’m not sure I understand what you are saying Manickkam – most of these funds have been around for more than a decade so how does lock in come into play?

      1. ELSS has its own cycles. People invest in bulk for tax-saving purposes and have to leave their money in for at least 3 years (lock-in) and most of them buy through agents and leave it aside for more number of years.

        I meant, SBI Magnum Taxgain is one such fund which was outperforming each and every fund in the past and was reviewed by everyone. After everyone started investing, now it lost its limelight. It has its asset though because of the lock-in period involved.

        Also, DTC is yet to come-in and some of them are skeptical on its working with ELSS. So, they are trying to deploy their funds somewhere else instead of ELSS for tax-saving purposes.

        Hope, its clear now.

        1. I still don’t follow the logic – people invest in bulk but then other people who invested earlier redeem also? So what now?

          Do you have any numbers on this theory? That’s probably the only way I’ll understand this.

          1. See this link:
   in 2005
            In this:
            His Magnum Tax Gain Fund had a 159% return in the past year, outperforming 1,361 Indian stock funds ranked by Bloomberg

            So, all those invested before 2006 and after analysis would have invested in this particular fund. Also, this was the best performing fund for a long time. Now, it has started performing poorly for numerous reasons. One of them is the fund manager has resigned. But still the money is not taken out because of the following reasons
            (1) 3-Years Lock-in Period
            (2) Laziness of people
            (3) Bulk investment and carelessness after that.

            Do you see everyone redeeming their amount exactly after 3-years if they have invested in bulk for tax saving purposes. I don’t think so!?
            ELSS is not only for tax saving but for also increasing your investment in Equity. And, Equity is for long-term as you already know.

            1. That article just talks about Sabharwal’s good picks and if you look at his funds after he moved from SBI they haven’t performed nearly as well so that fund under-performing is not just because of him leaving.

              But nothing in that article supports what you say about lock in period and in fact the link you have given to your own blog is nothing more than a list of top funds in one year from Value Research, which I don’t see how it adds to this discussion or supports what you say about lock in period.

              1. The link to my blog has nothing to do with this particular discussion. This blog entry has reference to Fidelity Fund, Which I think is also a good ELSS fund even though its on the verge of completion of 5 years. I think, only those funds that have completed 5 years where taken in your criteria.

                I was trying to predict the reasons for such high Assets controlled by SBI Magnum, even though it is performing poorly in the recent past.

                1. Exactly – the link to your blog has nothing to do with this discussion and for that reason it shouldn’t be here.

                  I don’t normally care if people link back to their blogs from the comments, and you should know that because you have done it yourself in the past.

                  But in this case it looks like you present a theory and then present the solution in your blog – which is not the case at all.

                  I don’t appreciate that at all. It’s not fair to OM readers.

                  1. You are free to take the link out. I don’t absolutely mind it. My comment had two sections.

                    Trying to add the Fidelity as the best fund for this year and link to my blog for that.
                    And, the other part, finding the reasons for higher assets in a ELSS fund. Probably, that can be added to your ‘Suggest a Topic’ for the next blog entry.

                    1. I won’t take the link out, and in principle I want people to use links, advance discussions and learn from each other.

                      I think you had very clear distinctions as to the sections of your comment in your head which sometimes don’t translate to the written word sometimes – which I think is what happened here.

                      I’m glad you expressed it that way.

  6. I think that problem is that we want the best…Is it possible to choose the bus which will be continuously ahead…if the best fund offers 20% in last 3 yrs and worst fund offers 10%,,then I will be happy if my fund gives me 15%…..

    1. Yeah, I think being in the higher range is enough, and asset allocation, how much you have in equities will prove to be more important than where in equity you have that as long as you’re not doing something silly like investing in a penny stock or a forever poor performing fund etc.

  7. A very interesting post. From the basket of around 30+ ELSS Mutual Funds choosing one is so difficult. Confusion that prevails in the mind of investor if investing in Equity Diversified fund which has 100s of schemes is all the more .
    If one looks at the assets managed by the ELSS funds (in crores) the top funds are:
    Magnum Taxgain 4,923.06
    HDFC Taxsaver 3,032.10
    Reliance Tax Saver 2,026.56

    While Canara Robeco Equity Tax Saver manages assets worth 302.1

    The other technical parameters of the funds like Standard Deviation, Sharpe Ratio, Beta are also similar. Risk and Volatility

    Question boils down to “How to choose a MF?”

    1. I haven’t really seen anything practical other than relying on long term returns data and expense ratio.

      I think churn is another useful factor to look at but it’s not easily accessible for all funds.

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