ELSS Tax Saving Funds V/s Open ended Funds
The steep fall in the market in 2008 has taken its toll on the diversified and ELSS (equity linked saving scheme) mutual fund schemes. Average one-year declines for both categories were above 50 per cent. However, ELSS schemes have tended to show lower divergence in returns than plain vanilla open-end funds.
Within open-end funds, the best fund lost 30 per cent in value, against the 78 per cent registered by the worst performer.
In the ELSS category, the divergence is relatively low. That’s because the top-performing fund itself didn’t fare too well, and lagged open-end funds by 13 percentage points.
The ELSS category has 30 schemes in all, of which 14 have a track record of over five years. While the category delivered a five-year annualised return of 12.6 per cent, more than 50 per cent of the schemes bettered than this average.
Of the entire lot, two schemes — Baroda Pioneer ELSS 96 and LIC Tax Plan — turned in a single-digit annualised return over the same period. Most ELSS funds outpaced the broader benchmark S&P CNX 500 and BSE-200 by a few percentage points.
In general, ELSS funds, being lock-in products, tend to invest with a long-term view of the market. They have a higher exposure to mid- and small-cap stocks to achieve higher returns. This could partially explain the sober one- and three-year performances of ELSS funds. But since the start of this year, ELSS funds changed tack and moved to large-cap stocks to protect the downside.
Sector selection, however, did influence returns. Funds that had a higher exposure to capital goods, power and construction suffered more than those with exposures to defensive sectors such as consumer non-durables and pharma during this period.
In recent months, funds such as Sundaram BNP Paribas Tax Saver and Reliance Tax Saver moved to higher cash levels and contained losses over the past six months.
In some cases, ELSS funds move to higher cash levels to declare dividends close to the financial year end.
However, funds such as HDFC Tax Saver, Franklin Tax Shield and HDFC Long-Term Advantage Fund, despite being fully invested, managed to moderate their losses.






