Wonder why several Equity Linked Savings Scheme (ELSS) funds have 96 in their name? One answer could be that Budget 1996 made investing in ELSS funds an exemption from long-term capital gains (in the way that 54EC Bonds are now). This was later withdrawn in the 2000 Budget.
The 2004 Budget exempted long-term gains on equity (including ELSS funds) from tax and replaced it with a 0.15% Securities Transaction Tax (STT). This regime came to an end with Budget 2018 and now a 10% long-term capital gains tax applies along with STT.
The tax provisions governing ELSS fluctuate every few years, but not as much as the fund returns themselves. Our favourite Section 80C under which ELSS funds are currently given tax benefits was introduced in FY 2005-06 making this the 12th year of the ELSS deduction.
We looked at the returns of 26 ELSS or Tax Planning funds that have been around for the past 10 years using data from Value Research. We’ve looked at regular plans only because their investors still outnumber those in direct plans. The returns from the category vary significantly between the top and bottom performers and between different entry points. In this article, we have focused on performance alone because it is the primary driver of fund selection. However other features such as volatility do also matter.
Past three years
The top five funds have delivered good returns as you would expect. Look at the table below:
|Top 5 Funds||Return % (Annualized)|
|Escorts Tax Plan||15.08|
|Principal Tax Savings Fund||13.66|
|L&T Tax Advantage Fund||13.4|
|Tata India Tax Savings Fund||12.55|
|Aditya Birla Sun Life Tax Relief 96||11.88|
However, the average return of the 26 schemes comes to just 9.70%. This is also very close to the median return of 9.67% meaning that 13 out of the 26 schemes delivered returns below 9.7%. Here are the bottom five:
|Bottom 5 Funds||Return % (Annualized)|
|LIC MF Tax Plan||7.2|
|BNP Paribas Long-Term Equity Fund||7.06|
|SBI Magnum Taxgain Scheme||7.03|
|Canara Robeco Equity Tax Saver Fund-Regular Plan||6.6|
|Baroda Pioneer ELSS 96 Fund||6.39|
Past 5 years
The year 2013 was a great time to get into Indian equities and ELSS schemes were no exception. The average of the 26 schemes observed, shoots up to 17.96% annualized. That’s a hefty rate, by any measure. However once again, there’s plenty of difference between the top and bottom five.
|Top 5 Funds||Returns % (annualized)|
|Reliance Tax Saver (ELSS) Fund||22.1|
|Escorts Tax Plan||21.72|
|Aditya Birla Sun Life Tax Relief 96||21.53|
|Aditya Birla Sun Life Tax Plan||20.75|
|Principal Tax Savings Fund||20.73|
One interesting thing is that two funds from a single fund house figure in the top and bottom five. Principal Tax Savings Fund at 20.73% features in the top five and Principal Personal Tax Saver Fund at 14.94% features in the bottom five. This latter fund stopped accepting fresh subscriptions from April 1st, 2017.
Aditya Birla Tax Relief 96, Escorts Tax Plan and Principal Tax Savings fund have remained in the top five over both the past three and five years. Baroda Pioneer ELSS 96 and Canara Robeco Equity Tax Saver have remained in the bottom five over both time periods.
|Bottom 5 Funds||Returns % (annualized)|
|UTI Long Term Equity Fund||15.29|
|Baroda Pioneer ELSS 96 Fund||15.29|
|Principal Personal Tax Saver Fund||14.94|
|Canara Robeco Equity Tax Saver Fund-Regular Plan||14.78|
|Taurus Tax Shield Fund-Regular Plan||14.74|
Past 10 years
Over a 10 year horizon, the group average again dips to a modest 9.97%. This is close to the median return as well, meaning that half of the ELSS Funds analysed delivered less than 10% over the past 10 years. Here are the top performers:
|Top 5 Funds||Returns % (Annualized)|
|Reliance Tax Saver (ELSS) Fund||14.22|
|Invesco India Tax Plan||13.04|
|L&T Tax Advantage Fund||12.7|
|ICICI Prudential Long Term Equity Fund (Tax Saving)||12.57|
|Canara Robeco Equity Tax Saver Fund-Regular Plan||12.56|
Reliance Tax Saver features in the top five for both the past five and ten years. Canara Robeco moves up dramatically from bottom to top 5 implying a high potential but highly volatile fund. The bottom five are:
|Bottom 5 Funds||Returns % (Annualized)|
|LIC MF Tax Plan||7.26|
|DHFL Pramerica Tax Plan||6.99|
|Baroda Pioneer ELSS 96 Fund||6.97|
|Principal Personal Tax Saver Fund||6.62|
|Escorts Tax Plan||4.41|
Out of these, Baroda Pioneer ELSS 96 and Principal PersonalTax Saver feature in the bottom five over the past five years as well. LIC MF Tax Plan skips the five-year bottom five list but makes it to the three-year bottom five list. Escorts Tax Plan, on the other hand, has moved dramatically from the bottom five in the past 10 years to the top five in the past 3 years – a tremendous performance improvement. However, returns must be consistent as well as good for a fund to really deliver value to investors.