As we reach end of the financial-year, Tax Saving Mutual Funds are back in news again with dividend declaration and advertisement to lure investors. Likewise, Mr. Aravinda was also approached by many Mutual fund company sales executives and agents; every one is claiming high returns, good fund performance, dividend history and scheme winning many awards.
Mr.Aravinda was confused which fund to invest in out of many Equity Linked Mutual Funds (ELSS) in market. Hence this article will help investors on how to select the top performing funds considering consistent returns, risk and overall performance. Last minute investors who are yet to do the tax saving for this financial year (2009-10) or Investors who are already ready for tax planning for the next financial year (2010-11) can use this article.
Step 1: First let us select the mutual funds which have made it to the Top 5 from past 10 years. (Source www.valueresearchonline.com)
| TOP 1 | TOP 2 | TOP 3 | TOP 4 | TOP 5 | |
| 10 Y returns (%) | HDFC Tax saver | Sundaram BNP Paribas Taxsaver | Franklin India Taxshield | ICICI Prudential Tax Plan | UTI Equity Tax Savings |
| 7 Y returns (%) | Magnum Taxgain | HDFC Tax saver | ICICI Prudential Tax Plan | Sundaram BNP Paribas Taxsaver | HDFC LT Advantage |
| 5 Y returns (%) | Magnum Taxgain | Canara Robeco Equity Tax Saver | Sundaram BNP Paribas Taxsaver | HDFC Tax saver | Sahara Tax Gain |
| 3 Y returns (%) | Taurus Tax Shield | Canara Robeco Equity Tax Saver | Religare Tax Plan | Sahara Tax Gain | DSPBR Tax Saver |
| 1 Y returns (%) | ICICI Prudential Tax Plan | HDFC Tax saver | Canara Robeco Equity Tax Saver | Birla Sun Life Tax Relief 96 | ING Tax Savings |
| Scheme | Launch date | Scheme | Launch date |
| HDFC Tax saver | March 1996 | Canara Robeco Equity Tax Saver | March 1993 |
| Sundaram BNP Paribas Taxsaver | November 1999 | Sahara Tax Gain | March 1997 |
| Franklin India Taxshield | April 1999 | Taurus Tax Shield | March 1996 |
| ICICI Prudential Tax Plan | August 1999 | Religare Tax Plan | December 2006 |
| UTI Equity Tax Savings | December 1999 | DSPBR Tax Saver | December 2006 |
| Magnum Taxgain | March 1993 | Birla Sun Life Tax Relief 96 | March 1996 |
| HDFC LT Advantage | December 2000 | ING Tax Savings | March 2004 |
Step 2: From the above shortlisted 14 funds, Remove the fund(s) which:
| Criteria | Reason | Removed funds |
| Appeared in TOP 5 in 5th to 10th year term but did not make it to TOP 5 in 1st to 5th year term | These funds did not make it to TOP 5 in last 5 years because of fund manager change and failed to give good returns compared to peers/benchmark. | UTI Equity Tax Savings;Franklin India Taxshield;HDFC LT Advantage |
| Have not completed 5th years of launch. | At least 5 years performance must be considered so that fund has seen both good and bad market cycles. | DSPBR Tax Saver;Religare Tax Plan |
Out of 14 funds, now 9 funds are in the list.
| Scheme | Fund manager | Benchmark | R-Squared | Alpha | Beta | Standard Deviation | Sharpe ratio |
| HDFC Tax saver | Vinay R. Kulkarni Since Nov – 2006 | S&P CNX 500 | 0.94 | 3.16 | 0.93 | 34.46 | 0.29 |
| Sundaram BNP Paribas Taxsaver | Satish Ramanathan Since Sep-2007 | BSE 200 | 0.92 | 5.17 | 0.96 | 35.86 | 0.34 |
| ICICI Prudential Tax Plan | Sankaran Naren Oct 2005 | S&P CNX Nifty | 0.87 | 2.69 | 0.97 | 37.6 | 0.27 |
| Canara Robeco Equity Tax Saver | Anand N. Shah since sept 2008 | BSE 100 | 0.93 | 9.54 | 1.02 | 38.05 | 0.45 |
| Magnum Taxgain | Jayesh Shroff Oct 2007 | BSE 100 | 0.96 | -0.12 | 0.94 | 34.6 | 0.2 |
| Sahara Tax Gain | A N Sridhar Feb 2007 | BSE 200 | 0.94 | 6.84 | 0.97 | 36.07 | 0.39 |
| Taurus Tax Shield | Mohit Mirchandani Since Jan 2010 | BSE 200 | 0.87 | 12.63 | 1.12 | 43.39 | 0.48 |
| ING Tax Savings | Jasmina Parekh Dec 2008 | CNX Midcap | 0.88 | -8.23 | 1.07 | 40.72 | -0.01 |
| Birla Sun Life Tax Relief 96 | Ajay Garg Oct 2006 | BSE 200 | 0.94 | 1.62 | 1.14 | 42.27 | 0.24 |
Step 3: From the above 9 funds, select the TOP 5 funds which have high Alpha (Alpha is a measure of an investment’s performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index.)
| Scheme | Fund manager | Benchmark | R-Squared | Alpha | Beta | Standard Deviation | Sharpe ratio |
| HDFC Tax saver | Vinay R. Kulkarni Since Nov – 2006 | S&P CNX 500 | 0.94 | 3.16 | 0.93 | 34.46 | 0.29 |
| Sundaram BNP Paribas Taxsaver | Satish Ramanathan Since Sep-2007 | BSE 200 | 0.92 | 5.17 | 0.96 | 35.86 | 0.34 |
| Canara Robeco Equity Tax Saver | Anand N. Shah since Sept 2008 | BSE 100 | 0.93 | 9.54 | 1.02 | 38.05 | 0.45 |
| Sahara Tax Gain | A N Sridhar Feb 2007 | BSE 200 | 0.94 | 6.84 | 0.97 | 36.07 | 0.39 |
| Taurus Tax Shield | Mohit Mirchandani Since Jan 2010 | BSE 200 | 0.87 | 12.63 | 1.12 | 43.39 | 0.48 |
| Scheme | 1-Y Rank | 3-Y Rank | % of portfolio | Risk/Return | VR Rating |
MS Rating |
| HDFC Tax saver | 2/34 | 10/29 | Large – 49.5Mid – 43.48Small – 6.98 | Below average/Above average |  |
|
| Sundaram BNP Paribas Taxsaver | 23/34 | 6/29 | Large – 54.51Mid – 42.82Small – 2.67 | Average/Above average | |
|
| Canara Robeco Equity Tax Saver | 3/34 | 2/29 | Large – 48.25Mid – 33.71Small – 18 | Average/High |  |
 |
| Sahara Tax Gain | 9/34 | 4/29 | Large – 49.81Mid – 36.30Small – 13.89 | Average/Above Average | |
|
| Taurus Tax Shield | 10/34 | 1/29 | Large – 22.22Mid – 40Small – 36.94 | High/High | |
 |
* expense ratio for all the above 5 funds is same – 2.5% per annum.
* VR – ValueResearch
*MS – Morning Star
TOP 5: Taurus Tax Shield must settle for 5th position because
- Ranking was down from 1st to 10th place;
- 40% of midcap and 37% of small cap exposure make it risky fund.
- Compared to other 4 funds, R-Squared value of 0.87 tells that this fund has less correlation with that of index.
- New fund manager assumed charge on Jan 2010; He is yet to prove his skills.
TOP 4: Sundaram BNP Paribas TaxSaver must settle for 4th position because
- Ranking was down from 6th to 23rd place
- New fund manager must prove his skills.
TOP 3: Sahara Tax Gain must settle for 3rd position because
- Ranking was down from 4th to 9th place
- Exposure to small cap is more compared to HDFC Tax Saver. Small cap stocks performance variation is more (+ve) in bull market and more (-ve) in bear market compared to mid-caps/large caps.
- Could not make it to TOP 5 in last 1 year returns
TOP 2: HDFC Tax Saver must settle for 2nd position because
- Ranking was upside from 10th to 2nd place
- Consistent performance from 10 years and 4 times in TOP 5
- Fund manager (Since Nov 2006) has proven his skills in bringing this fund from 10th to 2nd place in last 1 year returns
- Risk/Returns grade – Below average/Above average
TOP 1: Canara Robeco Equity Tax Saver
- Risk/Returns grade – Average/high
- Rank 3 in 1 year returns
- Decent values of R-Squared, Beta, Alpha and Sharpe ratio compared to other 4 funds.
- Though there is a change in fund manager, this fund performed well consistently in last 5 years
| TOP 3 ELSS Mutual funds for 2010-11 are: |
| TOP 1: Canara Robeco Equity Tax Saver |
| TOP 2: HDFC Tax Saver |
| TOP 3: Sahara Tax Gain |
February 22, 2010 at 1:17 PM
Good detailed write-up. Two things regarding this -
I went through the stats some 5 years back and invested in 5 different funds through SIP. I havent bothered to withdraw it yet. The statements for those are not promising even if their ratings were 4-5 stars in valueresearchonline.com. The main culprit is the resession that played a big role. so I feel the ratings given for each fund is just an indication and would not necessarily mean they will yeild good profits. I have burnt my hands and have not gone for any further investments on mutual funds.
Secondly, since this write-up is mainly for tax savings, it is worth to mention the direct tax code that might be in effect next year (will know after the budget). I heard that investments on ELSS funds will not be considered for tax savings if that comes to effect.
February 22, 2010 at 1:43 PM
1. Rating does not indicate high returns, rating is based on other peers. we should use many parameters to evaluate a fund not just rating.
Yes. recession has affected every body. Equity diversified mutual funds atleast need 5 years of term and we should always start exit from the funds atleast 3 years before.
If you can share those fund details (fund name, option, date invested) I can do a study and propose the best alternative.
2. Yes, in its present form Direct Tax Code has removed ELSS funds from 80C. But DTC will be effective from April 1, 2011.
Hopefully govt is planning to implement some measures for DTC in this financial year. After Feb 26, 2010 budget news, I will come up with an article on what is the strategy for this year.
Wait for one more week.
March 2, 2010 at 9:44 AM
Nice method , I’ll be interested to know if some one did the same exercise in 2006/ 2007 then what was the result . How those funds are performing now . Is it possible to do such analysis (ie is such historical data available )
March 2, 2010 at 11:17 AM
Thank you. Yes it is possible to do reverse engineering. But the site we use to get the data (like valueresearchonline.com) supports previous 10 years data.
If we want same study for 3 years back, then we need 3 years data.
It is not available ready made. we have note down and analyze.
March 11, 2010 at 4:13 PM
Hello Srinivas…all your articles make for interesting reading. Just looking for your opinion really..should a senior citizen be more inclined towards MIP’s for investment? My bank has suggested the following as investment opportunities Reliance MIP,HDFC MIP,BIRLA SUNLIFE MIP,ICICI PRUDENTIAL MIP. What do you say? What could be other investment opportunities with about 2lkhs? Thanks
March 29, 2010 at 8:12 AM
Ok. Before deciding, Is this senior citizen has
1. Own house (so that no rent to be paid)
2. Getting pension?
3. responsibilities towards children over?
4. Does he need monthly income for his and his wife monthly needs?
March 29, 2010 at 8:15 AM
You can share your list of equity diversified funds. I will take a look. I will also write a article on how to select equity diversified MF
March 14, 2010 at 8:50 PM
Hi Srinivas,
Can Same criteria be used while selecting for EQuity diversified MF ?
Or we shd use some other criteria ?
Regards
Yogesh
March 29, 2010 at 8:09 AM
I will write about it in next article
March 29, 2010 at 8:29 AM
Hi Srinivas,
Do u have idea about http://www.fundsindia.com/
Can i open the account in http://www.fundsindia.com/ and used it for selling & purchasing MF ?
Plz suggest ..
Regards
Yogesh
April 3, 2010 at 8:06 PM
If you cannot visit India or AMC directly, then you can go for it. convenience also matters.
See their charges and get all facts from their customer care.
August 19, 2010 at 12:46 PM
Dear Srinivas,
i’m willing to start 3 SIP of Rs. 2,100 each for 7 months in 3 ELSS.
PLZ Guide ME if the above 3 elss wud good for me even now in 19 Aug 2010?
regards.
anil k
August 19, 2010 at 12:57 PM
dear Srinivas,
u done a good job !thnx !!
ur this fund analysis is for option div. or growth or 4 both !?
how do i know that which option is good 4 me?
plz guide.
TOP 3 ELSS Mutual funds for 2010-11 are:
TOP 1: Canara Robeco Equity Tax Saver
TOP 2: HDFC Tax Saver
TOP 3: Sahara Tax Gain
March 24, 2011 at 8:37 PM
Go for Growth Option and Invest in Top 1, and 2…It is enough
September 21, 2010 at 1:45 AM
hi
i’m 27 years old and have little knowledge about investment. I can opt above average risk & want high return. I’m not interested in tax saving as 1L is already reached through EPF. I want to invest 5K per month for 3-5 yrs period. plz suggest me better options. still now i do not have any investment. Thanks
February 12, 2011 at 9:51 PM
I want to invest in the ELSS (One Time) .Which would be the best buy. HDFC Tax Saver or Magnum Tax Gain or something else.
March 24, 2011 at 8:38 PM
Invest in Canara robeco and HDFC tax saver is good. Invest in both in 60% and 40% split
May 22, 2011 at 2:17 AM
Hi, I want to invest in mutual funds approx 2 lacs, My requirements are
1. High return,
2. No tax saving,
3. Can take high risk
4. Short term prospcts, Max 3 year
Kindly advice which fund suits my requirements, which option (growth or dividend) do I need to select. Also advice is it right time to invest in mutual fund tho lump sum amount or start with SIP, because market direction is highly volatile at this time.