In How to pick a tax-saving fund, we spoke about looking at the fund's portfolio as well as not giving undue importance to the latest performance numbers. When that is employed as a sole parameter, it’s not uncommon for disillusionment to set in rapidly.
Let’s say in 2008 investors rushed to invest in Taurus Tax Shield. The reason being the fund was the best performer in its category in 2007 with a return of 112%, way ahead of the average 57%. Had investors done their homework, they would have noticed the fund’s abysmal performance in 2006. And, unfortunately, the fund has not put up an impressive performance since.
Or take Principal Tax Savings. It was the best fund in its category in 2012. But a smart investor would have checked past performance to realise that it underperformed the category average over the prior four calendar years.
When looking at performance, don’t get swayed by a sporadic burst in numbers. Check for consistency matters. To cite an example, Axis Long Term Equity has been fairly consistent in its performance. Over the past six years, even if it has not always been the best performer (which is an impossible feat), it has always beaten the category average and landed in the top quartile.
Some investors may find that consistency does not really matter and they are willing to ride it rough. Reliance Tax Saver is an example. The fund was the second best in its category in 2012, leaving the category average way behind. The very next year it slipped down and underperformed the category average only to again bounce back to the No. 2 slot in 2014. But again it slumped and delivered -4.34% in 2015 when the category average was 3.20%. However, the 5-year annualized returns have ensured that investors are well rewarded.
With that perspective, we have listed the top 10 performers. Here are the 4 filters we used.
- Only funds in the Equity Linked Savings Scheme (ELSS) category
- Open-ended schemes
- Growth and Regular plans (dividend plans and direct plans have been excluded)
- The returns referred to are 3-year annualized
Axis Long Term Equity
- Star Rating: 5 stars
- 3-year annualized return: 26.33%
- 5-year annualized return: 19.03%
This fund made its mark in 2010 and 2011. It topped the chart in 2010 with a return of 30% and fell the lowest the very next year when the market tanked. Not only is it consistently a top quartile performer, it is often the best in its category (2010, 2011, 2013).
Reliance Tax Saver (ELSS) Fund
- Star Rating: 4 stars
- 3-year annualized return: 22.47%
- 5-year annualized return: 15.56%
You can expect volatility from this fund but it rewards investors who stay in for the long haul. Its 3-, 5-, and 10-year returns have not disappointed. Volatile performer but does deliver eventually. Currently, a little over half the portfolio is in mid, small and micro caps.
Read a more detailed analysis.
Birla Sun Life Tax Relief 96
- Star Rating: 4 stars
- 3-year annualized return: 22.29%
- 5-year annualized return: 13.27%
After a searing performance in 2009, the fund faltered the next two years. Since then it has been a fairly consistent performer.
Birla Sun Life Tax Plan
- Star Rating: 4 stars
- 3-year annualized return: 21.46%
- 5-year annualized return: 13.65%
This fund has a longer history than its sibling mentioned above, but underperformed the category average in its first four years (2007, 2008, 2009, 2010). Since then the fund has improved its performance and did well last year. The fund has a higher cash allocation than the above one but market cap allocations are similar and so are the top holdings in the portfolios.
Religare Invesco Tax Plan
- Star Rating: 5 stars
- 3-year annualized return: 19.93%
- 5-year annualized return: 14.19%
This one won’t deliver an astounding return, but it is definitely stable and dependable. Over the past 9 calendar years, it underperformed the category average just once, that too by just 0.64%.
Escorts Tax Plan Growth
- Star Rating: 2 stars
- 3-year annualized return: 19.86%
- 5-year annualized return: 5.41%
This is an unpredictable offering. After 6 years of underperformance when compared to the category average (2008 to 2013), it put up a good show in the past two years. In terms of market cap allocation, around 69% of its portfolio is in smaller fare, out of which a high 38% is in small and micro caps. With a portfolio of less than 20 stocks, the top three holdings corner 30% of the portfolio.
Franklin India Taxshield
- Star Rating: 5 stars
- 3-year annualized return: 19.50%
- 5-year annualized return: 14.56%
This fund delivers by not losing ground when the market tanks. If one looks at the returns over the past decade, it has been known to underperform the category average in good markets. On the flip side, it has fallen much below the category average during bear phases. But, by and large, it is a steady performer. Its below-average performance is never abysmal and it manages to hold its own in a market carnage.
Read a more detailed analysis.
ICICI Prudential Long Term Equity
- Star Rating: 4 stars
- 3-year annualized return: 19.18%
- 5-year annualized return: 13.14%
Sporadically, the fund puts up some excellent numbers as it did in 2009 (a return of 112%) and 2012 (37.63%). At other times, it also manages to do fairly well. This multi-cap offering is fairly stable and delivers.
BNP Paribas Long Term Equity
- Star Rating: 4 stars
- 3-year annualized return: 18.98%
- 5-year annualized return: 15.81%
From 2007 to 2010, the fund consistently underperformed the category average. Anand Shah joined the AMC in 2011 and the change was immediately evident. Since then the fund has delivered above average returns and is now quite a contender in the category.
DSP BlackRock Tax Saver
- Star Rating: 4 stars
- 3-year annualized return: 18.91%
- 5-year annualized return: 12.84%
The fund tends to fall more than the category average during down markets (2008, 2011), but otherwise beats the average. However, last year Apoorva Shah, who was responsible for the fund’s performance, relinquished fund management responsibility. Read more on this fund.
