- Wealth PMS
There are several contenders for Best ELSS Mutual Fund in 2022, including Axis Long Term Equity, Canara Robeco Equity Tax Saver, DSP Tax Saver Fund, ICICI Prudential Long Term Equity, Invesco India Tax Plan, Kotak Tax Saver Fund, Quant Tax Plan.
Our pick for the best ELSS fund in 2022 continues to be the Mirae Asset Tax Saver Fund.
Read this short note on how we picked from the 37 ELSS Mutual Funds for 2022.
[Updated Feb 2023] Read about our ELSS pick for 2023 here
Also, read our latest analysis on:
ELSS (Equity Linked Savings Scheme) funds are equity mutual funds with up to ₹1,50,000 in 80C tax deduction in a financial year. In exchange, your money is locked in for three years. The gains are, however, subject to LTCG applicable when you sell. For a long-term investor, the 3-year lock-in should not be a concern.
How should an investor pick from the several options available?
The table shows the 37 ELSS funds available in India, along with how long they have been operational and the assets they currently manage.
There are 37 ELSS funds to choose from in 2022, down from 38 in 2021 after Sundaram Mutual Fund acquired Principal and merged the Principal Tax Saving Fund into its Sundaram Tax Savings Fund. After the Sachin Bansal-led acquisition, Essel Long Term Advantage Fund was renamed Navi Long Term Advantage Fund.
The longest-running ELSS fund is the Quantum Tax Saving Fund, which is over 13 years. Despite its longevity, it manages a modest ₹101 Crores in assets. The smallest ELSS fund in terms of assets managed is the Shriram Long Term Equity Fund at ₹37 Crores.
Axis Long Term Equity Fund continues to be the largest ELSS Fund, managing ₹33,785 Crores.
Table shows 1 / 3 / 5 year annualised returns in addition to calendar-year wise returns from 2014 to 2021.
You can sort by any column on the chart.
The hot-fund chasing selection process or the “let’s face it, that’s what most investors do” process is easy.
Sort the table above by returns over various time-frame and pick the highest one. You are unlikely to have heard of the Quant Tax Plan fund before today. But it’s the top-performing ELSS fund basis five-year performance, decent credit to a whopping 63% over the last year. It manages a respectable ₹650+ Crores.
The Quant Tax Plan fund makes it to our shortlist but is not our final pick for the best ELSS Fund for 2022.
How we shortlisted funds
We considered five parameters to identify our shortlist from the 37 fund longlist.
- Longevity or Track Record. Ideally, we’d want eight years of performance to represent business cycle performance in good and bad years, but we don’t have that luxury.
- Threshold: At least three years of operational history
- AUM Health. Expense ratios tend to be in the 0.8% to 1.9% range. A fund with a low AUM will struggle to apply high-quality research fund management resources if its AUM is inordinately low. But then some fund houses have tremendous reach because they are part of a massive retail banking network. Others have built up AUM over time, while others are relatively new entrants and do not have the network advantage.
- Threshold: To view them with a consistent lens, we applied two conditions, either of which qualifies a fund to be on the shortlist. Fund AUM of ₹50 Crores for each year it has been operational or a minimum threshold of ₹300 Crores.
- Outperformance versus the category: Defined as the share of calendar years, the fund outperformed the category median
- Threshold: outperforming the category median at least half the time
- Underperformance versus the category: Defined as the share of calendar years, the fund was in the bottom quartile of the category
- Threshold: Should not have been in the bottom quartile more than a quarter of the time
- The volatility of its performance year-to-year is defined by the Coefficient of Variation of annual returns, i.e. Standard Deviation of annual performance / Average of annual performance
- Threshold: Lower variation than the category
Funds that cleared all of the above five conditions made our shortlist.
Since this table is our basis for shortlisting ELSS Funds, let’s take a moment.
The 3Y track record column is self-explanatory.
AUM Health is “Yes” if the fund manages either of (at least ₹300 Crores) OR (has ₹50 Crores for each year it has been operational). The rationale is that a fund that does not manage at least a threshold amount of money would struggle to deploy adequate research and fund management expertise. We ensure new funds are not penalised by applying a ₹50 Crore/year threshold.
The next column ‘Outperformed Category‘ measures how much of the time the fund’s returns have exceeded the category median. The best possible score is 1. For example, Quantum Tax Saving Fund outperformed the category median in 2 out of the 8 years since 2014. Therefore it’s Outperformed category score is 2 / 8 = 0.25.
‘Bottom in Category‘ measures the opposite. How often has the fund been in the bottom 25% by performance? The best possible score is 0. Quantum Tax Saving Fund has been in the bottom quartile for 5 of the 8 years from 2014 to 2021 and therefore scores 0.63.
YoY Volatility meaning year-on-year volatility measures how much the fund’s returns vary from one year to the next. We normalise for absolute performance by dividing the standard deviation by the average annual return which makes the metric comparable across funds. The higher this number, in relation to the other funds, means a fund that soars some years but sinks in others.
Each filter eliminates some funds till we are left with eight funds for consideration.
The 8 ELSS funds in our shortlist (in alphabetical order):
- Axis Long Term Equity Fund
- Canara Robeco Equity Tax Saver Fund
- DSP Tax Saver Fund
- ICICI Prudential Long Term Equity Fund (Tax Saving)
- Invesco India Tax Plan
- Kotak Tax Saver
- Mirae Asset Tax Saver Fund
- Quant Tax Plan
You can sort the tables above by any column. To view all the shortlisted funds in the table, click the “Clears All Conditions” column to see how the various funds compare.
This leads to our choice of ELSS Fund for 2022: Mirae Asset Tax Saver Fund.
It ranks 2nd overall on five-year annualised return. It has outperformed the category median in each of its six years of operational track record. More importantly, it has never been in the bottom quartile of category performance in those six years.
Being able to avoid poor relative performance while not necessarily being the best each year means you stand a great chance of top-decile performance over the long run. We’d stick with the past years pick for ELSS investments: Mirae Asset Tax Saver Fund.
All our product review posts are independent and have no commercial relationship of any kind with AMCs or any other organization. Please do your own due diligence to determine the suitability of any funds mentioned here to your portfolio. Let us know what you think on twitter or slack.
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