The performance of ELSS funds over 10 yearsWonder 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 This was later withdrawn in the 2000 Budget.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.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.