ELSS funds show outperformance over long-term, reveals study

Equity-linked savings schemes, or ELSS, funds are safe havens against market volatility for long-term investors, says a study. Over a 10-year period, Indian ELSS funds have shown the largest outperformance relative to their benchmarks, says the study, by Asia Index, a BSE and S&P Dow Jones Indices JV.

The ELSS fund  category has given asset-weighted returns that were 1.35 per cent higher than the benchmark, the study said.

ELSS has a three-year lock-in period and provides tax benefit to investors for investments up to Rs 1.5 lakh per annum under Section 80 C of Income Tax Act.

Talking about the ELSS outperformance, the study said “Over the 5- and 10-year periods ending in June 2018, the majority of funds outperformed the benchmark, but over the 1- and 3-year periods, 84 per cent and 62 per cent of the funds underperformed the benchmark. The asset-weighted fund return was 40 bps higher than the equal-weighted fund return.”

However, the picture changes for one-year performance. When the S&P BSE 200 returned 12.43 per cent over the one-year period to June 2018, during the same period, 88 per cent of large-cap equity funds underperformed their benchmarks. Moreover, 62 per cent of mid-/small-cap equity funds and 83 per cent of government bond funds underperformed their respective benchmarks.

Over a 10-year period, large-cap equity funds witnessed a low survivorship rate of 68 per cent and a low style consistency of 13 per cent over, said Akash Jain, associate director, global research & design, Asia Index.

“The asset-weighted return for large-cap equity funds was 51 bps higher than the equal-weighted return over the 10-year period. In contrast, the margin between asset- and equal- weighted returns for ELSS funds was 40 bps,” Jain said.

The first half of 2018 saw a relatively higher proportion of capital chasing large-cap stocks. However, the S&P BSE 100, the benchmark for Equity Large-Cap funds, ended flat at 0.34 per cent during this period, whereas the S&P BSE 400 MidSmallCap Index, the benchmark for Indian Equity Mid-/Small-Cap funds, was down 12.74 per cent during the same period.

Over the three-year period, the asset-weighted return of large-cap funds was 1.3 per cent lower than benchmark S&P BSE 100.