We study 40 ELSS funds to identify consistent performers when benchmarked with respect to the NIfty 200 Total Return Index (dividends included) using the freefincal 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 3,4 and 5-year return period possible from January 1st 2013 (from the inception of direct plans).
As an example, take IDFC Tax Advantage(ELSS) Fund-Direct Plan-Growth. Out of 1169 five-year roll return data points, the fund secured a return higher than NIfty 200 TRI 977 times. We use this to define a rolling return performance consistency of 977/1169 = 84% (five years).
We have 40 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.
- First, we shall find out how many of these 39 funds have a rolling return performance consistency of >70% over five years => only 15.
- Among these 15, only 12 have a rolling return performance consistency of >70% over four years.
- Among these 12, 11 have a rolling return performance consistency of >70% over three years.
- These 11 funds are listed below.
List of ELSS funds with consistent outperformance
- Axis Long Term Equity Fund – Direct Plan – Growth Option
- BOI AXA Tax Advantage Fund-Direct Plan- Growth
- Canara Robeco Equity Tax Saver Fund-Direct Plan-Growth
- DSP Tax Saver Fund – Direct Plan-Growth
- IDFC Tax Advantage(ELSS) Fund-Direct Plan-Growth
- Invesco India Tax Plan – Direct Plan-Growth
- JM Tax Gain Fund (Direct) – Growth Option
- Kotak Tax Saver-Scheme-Growth – Direct
- Mirae Asset Tax Saver Fund-Direct Plan-Growth
- quant Tax Plan – Growth Option – Direct Plan
- Tata India Tax Savings Fund-Growth-Direct Plan
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 freefincal equity mutual fund 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. In this study, we shall use downside capture as a measure of downside protection. How downside capture is computed: Study monthy returns over a given period (say one year or three years). Look at the fund returns for months when the index returns were negative. Compute the fund’s 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 downside capture ratios (DCR) for every possible five-year period from April 3rd 2006. 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 shortlist, nine funds have greater than 70% downside protection consistency over 3,4 and 5 years.
- 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
- Kotak Tax Saver-Scheme-Growth – Direct
- Mirae Asset Tax Saver Fund-Direct Plan-Growth
- quant Tax Plan – Growth Option – Direct Plan
- Tata India Tax Savings Fund-Growth-Direct Plan
Readers are advised to do their own research with due diligence before making investment decisions.
You can use the mutual fund screener to 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, and Contra Funds.
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Dr 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 promoting unbiased, commission-free investment advice.
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