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5 ELSS funds more than 25% return in last 3 years

ELSS or equity-linked savings schemes are equity-based mutual funds eligible for tax exemption under section 80C of the Income Tax Act, 1961. This class of investments is ideal for taxpayers who prefer to enjoy the growth of wealth by taking calculated risks and tax savings.

5 ELSS funds more than 25% return in last 3 years

5 ELSS funds more than 25% return in last 3 years
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10 Dec 2024 IST

ELSS or equity-linked savings schemes are equity-based mutual funds eligible for tax exemption under section 80C of the Income Tax Act, 1961. This class of investments is ideal for taxpayers who prefer to enjoy the growth of wealth by taking calculated risks and tax savings.

ELSS funds invest 80% of AUM (asset under management) in equity and the rest in other instruments.

Key Features, advantages, and disadvantages of ELSS funds

1. They offer income tax exemptions of up to Rs.150000 per 80C of the Income Tax Act, 1961, if the new tax regime is not opted for.

2. Total savings after investing in the ELSS fund is Rs.46800, i.e. ((Rs.150000*30%)+(Rs.45000*4%=Rs.1800/)- ( 4% education cess)).

3. ELSS funds have a locking of 3 years and cannot be redeemed or churned prematurely.

4. It is the only tax-saving option that has the potential to beat food inflation, which is around 9 % in India.

5. ELSS funds are like Flexi funds as they invest in large-cap, mid-cap, and small-cap funds but beat the returns of flexi-cap funds.

Basic parameters for shortlisting an ELSS fund:

Here are some parameters for choosing a fund before we opt for an ELSS fund.

1. CAGR-

The compounded annual growth rate (CAGR) signifies the yearly growth rate of a mutual fund over a period of more than one year.

2. Fund Manager's experience:

A fund manager with varied experience can make fast decisions based on market conditions and maintain the fund's momentum. They can also change approaches to controlling the risk parameters.

3. Expense Ratio:

The annual fees charged by the fund houses are used to manage the fund's expenses. These include advertising fees, management fees, and allocation charges. The higher the expense ratio, the less valuable the ELSS fund.

The fund's 0.5% to 0.75% expense ratio is good, and 1.5% or above is not recommended. Though Quant ELSS Tax Saver's expense ratio is 1.75%, indicating the fund manager has total control of the portfolio, the CAGR of 5 years is 35% and of 3 years is 29%.

4. Sharpe Ratio:

A Sharpe ratio helps to determine the risk-adjusted performance and must not be calculated in isolation. The Sharpe ratio of any fund between 1.00 and 1.99 signifies a prudent risk-adjusted performance. When it is more than 0, it indicates the fund has generated positive returns above the risk-free rate.

For example, Quant ELSS Tax Saver fund has a Sharpe Ratio of 1.12 and Sundaram Long Term Tax Advantage Fund - Series III has 1.32, the 5-year annualised return of Sundaram Long Term Tax Advantage Fund - Series III is 27%, and that of Quant ELSS Tax Saver fund is 35%.

5. Volatility/Standard Deviation:

The degree of price change is called volatility. The volatility of a fund is measured by variance or standard deviation. Higher volatility means high risks.

Top 5 ELSS funds that generated more than 25% CAGR in 3 years

Based on the above-mentioned parameters, the top 5 ELSS funds that generated more than 25% CAGR in 3 years are ranked as follows.

Top 5 ELSS funds that generated more than 25% CAGR in 3 years

Based on the above-mentioned parameters, the top 5 ELSS funds that generated more than 25% CAGR in 3 years are ranked as follows.

5 ELSS funds with up to 25% return in the last 3 years

Ranking

Scheme Name

3Years

Standard Deviation

Expense Ratio

Sharpe Ratio

1

Sundaram Long Term Micro Cap

Tax Advantage Fund - Series IV - Growth

30%14.852.171.35
2

Quant ELSS Tax Saver Fund - Growth

29%17.631.751.12
3

SBI Long-Term Equity Fund

28%12.981.621.39
4

HDFC ELSS Tax saver - Growth

27%12.141.731.41
5

Motilal Oswal ELSS Tax Saver Fund

27%14.141.861.20

A Synopsys of the above 5 funds

1. Sundaram Long Term Micro Cap Tax Advantage Fund - Series IV - Direct Plan-Growth:

This fund was incorporated on 27 March 2017. Its absolute return is 120.15 %, and its annualized return is 27.15%. As of 28 June 2024, the fund size is Rs.35.56 crore, and the expense ratio is 1.24%. The equity shareholding percentage is 96.29%.

Risk Category- Very high risk.

2. Quant ELSS Tax Saver Fund - Direct Plan-Growth:

This fund was incorporated on 07 January 2013. Its absolute return is 1026.10%, and its annualised return is 23.48 %. As of 28 June 2024, the fund size is Rs.9860.39 crore, and the expense ratio is 0.77 %. The equity shareholding percentage is 96.47 %.

Risk Category- Very high risk

3. SBI Long Term Equity Fund - Direct Plan-Growth:

This fund was incorporated on 02 January 2013. The absolute return is 567.78 %, and the annualised return is 17.93 %. The fund size as of 28 June 2024 is Rs.23887.64 crore, and the expense ratio is 0.94 %. The equity shareholding percentage is 90.97 %.

Risk Category- Very high risk.

4. HDFC ELSS Tax Saver Fund- Direct Plan-Growth:

This fund was incorporated on 05-Mar-1996. The absolute return is 472.95 % and annualized return is 16.39 %. The fund size as of 28 June 2024 is Rs.14752.93 crore and the expense ratio is 1.13%. The equity shareholding percentage is 91.11%.

Risk Category- Very high risk.

5. Motilal Oswal ELSS Tax Saver Fund - Direct Plan-Growth:

This fund was incorporated on 21 January 2015. The absolute return is 447.26 %, and the annualised return is 19.73 %. As of 28 June 2024, the fund size is Rs.3435.94 crore, and the expense ratio is 0.68 %. The equity shareholding percentage is 99.30 %.

Risk Category- Very high risk

Conclusion:

Based on the vintage of 10 years and a moderate AUM size, and based on the positive Sharpe ratio supported by a well-distributed portfolio, Quant ELSS Tax Saver fund, the Growth option seems to be a moderately good choice for investment for disciplined investment and also for tax saver purpose.

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