Equity-linked saving schemes (ELSS) provide the twin benefits of tax savings and capital appreciation and are a good investment option for both conservative and aggressive investors. A few schemes which can be considered for investments in 2013 have performed well both in the short and long term.
Out of the three funds reviewed here: the one which stands out for its sheer boldness and willingness to go against the norm is Reliance Tax Saver. I am not surprised that it is the only fund which figures in the top five best performing schemes in the ELSS category on the basis of one-year and five-year returns (see accompanying table) . Its fund manager, Ashwani Kumar, takes bold bets in relatively lesser known shares and backs them to the hilt. For example, Eicher Motors is his top pick (carries a weight of 6.27 per cent of portfolio value) when most fund managers are happy and contented to go with the established heavyweights like ICICI Bank and the like. In 2012, Eicher has generated absolute returns of nearly 74 per cent! Some of his other bets like Divi’s Labs (40 per cent) and Bajaj Finance (80 per cent) have delivered excellent returns last year which was good year for the equity markets. His performance even in the 2008 market was creditable when he outperformed the benchmark BSE 100 by a wide margin. In 2008, when the BSE 100 fell by 55 per cent, Reliance Tax Saver gave its worst performance in the first quarter of 2008 (-33 per cent) but stabilized thereafter in the subsequent quarters to finish the year with a more stable performance in a difficult environment.
THE TOP FIVE
Schemes 1-year return 5-year return
ICICI Prudential Tax Plan 32.45% 4.73%
Franklin India Taxshield 27.18% 4.68%
L & T Tax Advantage 23.84% 4.39%
Reliance Tax Saver 41.08% 4.53%
Religare Tax Plan 27.01% 4.34%
DSP Blackrock Tax Saver 37.60% 0.79%
HSBC Tax Saver 36.64% 2.19%
IDFC Tax Advantage 35.41% …
BNP Paribas Tax Advantage 33.38% -4.17
(Source: BSE Morningstar; the returns are as on Jan.10, 2013)
The other two funds which I think investors can consider are ICICI Prudential Tax Plan and Franklin India Taxshield. Both have more or less equal bias towards large cap growth stocks and have identical expenses ratio (close to 2 per cent). Both outperformed the benchmark BSE 100 in 2008 bear market but Franklin did a slightly better job. Besides, Franklin enjoys the additional advantage of support from its parent (one of the best fund managers globally).