Investing through Systematic Investment Plan (SIP) in Tax Saving Mutual Funds (ELSS)

1. RETAIL RESEARCH
Investing through Systematic Investment Plan (SIP) in Tax Saving Mutual Funds (ELSS)
Prologue: Systematic investment plan (SIP) is a disciplined way of investing in mutual funds which enables the investors
making regular and equal payments at regular intervals for periods to accumulate wealth over long run. An SIP is a planned
approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
Equity Linked Saving Schemes (ELSS) are mutual fund schemes providing tax benefit to the investors for investments up to
overall limit of Rs. 1,50,000 under Section 80 C of the Income tax Act. Investors get a deduction of the amount invested from
their taxable income. The tax payer straightaway saves to the extent of tax applicable on the invested amount.
Investing through SIP route in ELSS is an optimal way to accumulate corpus and can be better option for all tax paying
investors who have scope to invest u/s 80C of the Income tax Act. SIP option helps start tax planning from the beginning of the
financial year. Investments through SIP mode have grown firmly and given significantly higher returns over the longer term.
Investors can prefer monthly or quarterly frequency to invest in ELSS schemes. SIP works well across market cycles and helps
to average out the cost of investment that are done in different periods.
Features of ELSS:
i. By investing in Equity Linked Saving Schemes (ELSS), the investors get the tax benefit for the investments up to
overall limit of Rs. 1,50,000 under Section 80 C of the Income tax Act. That means the amount invested (up to Rs.
1,50,000) in ELSS can be deducted from the taxable income.
ii. ELSS are equity linked products which allow investors to participate in equity markets and provide higher return
potential (on the flip side, risk is also higher but the tax benefit acts as a buffer).
iii. ELSS offer tax benefit on investment in a short lock in period of 3 years while it is 6 years in the case of National
Savings Certificates and 15 years in the case of PPF.
iv. Since the investments in equity over long-term delivers better returns, the lock-in period of 3 years allows the
fund managers of ELSS to build a portfolio for the long term without worrying about early redemptions. This helps
the schemes to outperform frontline indices with a considerable margin.
v. Opting for the dividend option in the ELSS allows investors to realize some gains even during the lock-in period.
Features of SIP:
i. Simple and disciplined approach towards investment.
ii. Investment possible with small sum of money invested regularly to accumulate wealth.
iii. Based on concept of Rupee Cost Averaging.
iv. Flexibility in terms of amount or quantity based SIP.
v. Flexible intervals like Daily/ Weekly/ Fortnightly/ Monthly/ Yearly basis.
Benefits of investing through SIP:
i. Reduces Risk because of Rupee Cost Averaging.
ii. SIP can be started with very small amount of money.
iii. Timing the market is not necessary.
Aug 04, 2015
RETAIL RESEARCH
SIP in ELSS schemes

2. RETAIL RESEARCH
iv. Long term financial goal can be aligned with SIP.
v. Disciplined approach towards Investment helps in controlling the emotions.
Benefits of investing in ELSS through SIP:
i. Investors can start and continue investing with small amount of minimum of Rs. 500 through SIP.
ii. Better option for investors for all tax paying investors who have scope to invest u/s 80C of the Income tax Act.
iii. Helps start tax planning from the beginning of the financial year.
iv. Investments through SIP mode have grown firmly and given significantly higher returns over the longer term.
v. Investors can prefer monthly or quarterly frequency to invest.
vi. SIP works well across market cycles and helps to average out the cost of investment that are done in different
periods.
vii. But investors have to keep in mind that every SIP installment is meant to be locked in for 3 years.
I. SIP Performance of ELSS Schemes:
We have conducted a study on the SIP performance (based on XIRR return) of ELSS schemes wherein the SIP is assumed to be
made for 3 years. That means the SIP (XIRR) returns are calculated from 36 installments with the monthly SIP of Rs. 1,000. 1st
of each month are considered as date of investment. Hence, total investment amount is Rs. 36,000.
We have calculated a set of 3 years SIP returns for 38 open ended ELSS schemes by going back on month on month basis. For
example. (SIP start date: 1st
Aug 2012 & End date: 1st
July 2015), (start date: 1st
July 2012 & end date: 1st
June 2015) and so on.
(Source: ACEMF)
Please note: these data calculated is for illustrative purpose only. We calculated the value for 3 year SIP that ends in 3
years. Actually, investor has to wait for 3 years from each installments to realize the benefit from their investment (due to
lock-in period of 3 Yrs).
Further, we have classified the ELSS schemes as;
I. Schemes with NAV history of 5 years and more (34 out of 38 schemes) and
II. Schemes with NAV history of 8 years and more (25 out of 38 schemes).
The classification of ‘schemes with NAV history of 5 years and more’ helped us to arrive the better recent performers while
the classification of ‘schemes with NAV history of 8 years and more’ helped to figure out the schemes that delivered
consistent performance over years.
SIP (XIRR) returns are calculated from 36 installments with the monthly SIP of Rs. 1,000. 1st
of each month are considered as
date of investment.
I). Schemes with NAV history of 5 years and more (34 out of 38 schemes):
For the ‘Schemes with NAV history of 5 years and more’, we have calculated 3 year SIP returns from the 5 years NAV history
and arrived with 24 data points for respective 34 schemes. Given the total invested amount of Rs. 36,000 (as assumed Rs.
1,000 for 36 months), we have counted how many schemes posted returns above the invested amount.

3. RETAIL RESEARCH
There are 12 schemes which never dipped into the negative in 3 year SIP during the last 5 years period. That means if you had
started a 3 year SIP in any of these 12 schemes (with the date of investment of 1st
day of every month) in any time in the last 5
years period, you would have ended with at least Rs. 36,000 at the end of 3 years (see the below chart).
Amongst these, Axis LT Equity Fund (G), Reliance Tax Saver (ELSS) Fund (G), Principal Tax Saving Fund, BNP Paribas LT Equity
Fund(G) and ICICI Pru Tax Plan-Reg (G) posted higher average returns during the period.
The below chart shows the same as the SIP value at the end of the third year in the last 5 years period for the relatively better
performing schemes. Axis Long term Equity and Reliance Tax Saver funds showed outperforming returns. Truly, the reason
attributable for the outperformance of the most of the schemes is that the SIP investments are made during rising equity
market conditions. It is to be noted that most of the schemes from ELSS category outperformed the key benchmark indices
such as CNX Nifty and CNX Midcap indices with a huge margin.
Chart of 3 year SIP values calculated from 5 yrs data which depicting the better performance in the recent period:
The SIP performance of the schemes (XIRR % earned) with various SIP periods (for 5 years):
Scheme Name 3 Yr SIP 4 Yr SIP 5 Yr SIP
Axis LT Equity Fund(G) 38.98 34.56 29.32
IDFC Tax Advt(ELSS) Fund-Reg(G) 33.65 29.82 24.48
Birla SL Tax Relief '96(G) 33.65 29.42 23.42
Reliance Tax Saver (ELSS) Fund(G) 36.97 32.15 26.48
BNP Paribas LT Equity Fund(G) 32.74 29.03 24.59
Franklin India Taxshield(G) 31.77 27.69 23.32
Religare Invesco Tax Plan(G) 32.49 28.38 23.54
Benchmark:
Average of 34 ELSS schemes returns 27.92 24.68 20.11
CNX Nifty Index 17.39 16.52 13.58
CNX 500 Index 20.54 18.72 15.06

4. RETAIL RESEARCH
II. Schemes with NAV history of 8 years and more (25 out of 38 schemes):
For the ‘Schemes with NAV history of 8 years and more’, we have calculated 3 year SIP returns from the 8 years NAV history
and arrived with 60 data points for respective 25 schemes. Given the total invested amount of Rs. 36,000 (as assumed Rs.
1,000 for 36 months as we calculate 3 year SIP), we have counted how many schemes posted returns above the invested
amount.
Interestingly, there are only 2 schemes as ‘Franklin India Taxshield(G)’ and ‘BNP Paribas LT Equity Fund(G)’ which never
dipped into the negative (60 out of 60 data points) in 3 year SIP performance that made during the last 8 years period. That
means if you had started a 3 year SIP in these 2 schemes (with the date of investment of 1st
day of every month) in any time in
the last 8 years period, you would have ended with atleast Rs. 36,000 at the end of 3 years.
There are other two schemes ‘ICICI Pru Tax Plan-Reg(G)’ and ‘HDFC Long Term Adv Fund(G)’ that posted outperformance 59
times out of 60 times. ‘Reliance Tax Saver (ELSS) Fund (G)’, however, dipped 4 times out 60.
Chart of 3 year SIP values calculated from 8 yrs data which depicting the consistent performance:
The SIP performance of the schemes (XIRR % earned) with various SIP periods (for 8 years):
Scheme Name 3 Yr SIP 4 Yr SIP 5 Yr SIP 6 Yr SIP 7 Yr SIP 8 Yr SIP
Reliance Tax Saver (ELSS) Fund(G) 36.97 32.15 26.48 23.85 24.26 21.66
BNP Paribas LT Equity Fund(G) 32.74 29.03 24.59 22.09 21.94 18.67
Religare Invesco Tax Plan(G) 32.49 28.38 23.54 21.37 22.34 20.15
Franklin India Taxshield(G) 31.77 27.69 23.32 21.36 22.02 19.79
Birla SL Tax Plan(G) 32.41 28.44 23.34 20.61 20.46 17.72
SBI Magnum TaxGain'93-Reg(G) 29.72 26.50 21.83 19.23 19.54 17.12
Average of 25 ELSS schemes returns 27.41 24.19 19.66 17.56 18.22 16.00
CNX 500 Index 20.54 18.72 15.06 13.33 14.32 12.50
CNX Nifty Index 17.39 16.52 13.58 12.38 13.32 11.76
The above data portrays the schemes that have posted consistent performance during long run. Investor should be careful
while start investing in categories such as ELSS by not just looking at the recent performance. It is wise to consider schemes
that have posted consistent performance (may be above average) in the past. (Despite the fact that past performance is no
guarantee for future performance).

5. RETAIL RESEARCH
Consistency matters: The below chart points out the position of the top 10 ELSS schemes in the last seven years period:
Note: performance based on 3 year SIP that ended in Jan of every year.
II. Lump sum Vs. SIP in ELSS schemes:
Ideally speaking, Investors should not compare the performance of the lump sum investments with SIP investments. Both are
entirely two different concepts and this comparison will derive false conclusion depending on the entry time in case of
lumpsum investments.
One can say that most of the time, under most circumstances, over a sufficiently long period of time and especially during
market downturns, SIPs will do better than the lumpsum. However, lumpsum scores over SIP mode during the rising equity
market as the cost averaging does not work in favour of SIP investment to the investors in such times.
The charts below portray the comparison of SIP & Lump-sum investments which is made in relatively better performing ELSS
schemes. Interestingly, under most of the cases, lump sum and SIP investments posted almost equal returns except during
market rises wherein in lump sum investment posted higher returns while SIP investment posted higher returns during market
correction.
Comparison of returns of SIP & Lump-sum investments in CNX Nifty:

6. RETAIL RESEARCH
Please note, for our comparison, Rs, 36,000 of one time investment is considered for lump sum calculation while 36
instalments of Rs. 1,000 for each month considered for SIP return calculation. Here, SIP scores over lump sum as a small drop
of investment through SIP grows equally to the amount that grew from bigger denomination.
Comparison of returns of SIP & Lump-sum investments in ELSS Schemes:
Please remember, that as each instalment of SIP is locked in for three years, the entire investment cannot be withdrawn in one
lumpsum (before 6 years), unless the investor stops the SIP at least three years before the date on which he desires to
withdraw entire accumulation to meet some planned financial outgo.
Please click on to access our earlier reports on SIP:
1. SIP – Special.
2. SIP – FAQ.
Analyst: Dhuraivel Gunasekaran (Email: Dhuraivel.gunasekaran@hdfcsec.com) Source: NAVIndia & ACEMF
RBI & AMC Sites
RETAIL RESEARCH Fax: (022) 3075 3435
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30753435 Website: www.hdfcsec.com
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