Bandhan vs Motilal Oswal ELSS Tax Saver Fund: Which ELSS Suits Your Portfolio?
September 9, 2024 Mutual Fund
In the current landscape of financial markets, 2024 has ushered in a period of notable volatility and uncertainty. Investors are grappling with fluctuating economic indicators, shifting global policies, and domestic policy changes that have introduced both opportunities and risks. This climate of unpredictability makes strategic investment choices more crucial than ever, particularly for those seeking tax-saving avenues alongside wealth accumulation.
In such an environment, selecting the right investment vehicle becomes paramount. Equity Linked Savings Schemes (ELSS), which offer tax benefits under Section 80C of the Income Tax Act, are particularly relevant now. With a mandatory lock-in period of three years, ELSS funds are uniquely positioned to navigate market fluctuations while providing the dual benefit of tax savings and potential capital growth.
The current market volatility underscores the importance of choosing ELSS funds that not only promise tax efficiency but also align with an investor’s risk tolerance and long-term financial goals. As investors seek to balance their portfolios amidst market turmoil, understanding the distinctive features of different ELSS funds becomes essential.
However, with a plethora of ELSS funds available, selecting the right one for your portfolio can be a daunting task. Choosing the best ELSS mutual funds requires more than just a glance at historical returns. It involves analysing various factors such as the fund’s investment approach, expense ratio, risk factors, and how it aligns with your long-term financial goals.
This is where the Bandhan ELSS Tax Saver Fund and the Motilal Oswal ELSS Tax Saver Fund come into play. Both funds offer unique investment strategies and risk profiles, catering to different investor needs.
[Read: How to Select the Best Suitable Tax-saving Option for You]
The introduction of the new tax regime and amendments in tax laws have influenced how investors approach tax-saving investments. The growth of the ELSS space reflects a broader trend of increasing investor confidence in equity markets and mutual funds. As investors continue to seek opportunities for both tax savings and wealth creation, ELSS funds are likely to remain a pivotal component of financial planning.
Note: In my previous mutual fund comparison articles, I have covered a comprehensive analysis of the few Best ELSS Mutual Funds for 2024; you may consider reading –
Top ELSS Mutual Funds: HDFC ELSS Tax Saver Fund vs Quant ELSS Tax Saver Fund
Choosing the Right ELSS: SBI Long Term Equity Fund vs Mirae Asset ELSS Tax Saver Fund
Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund: Pick Your Tax-Saving Option
Best ELSS Mutual Funds: DSP ELSS Tax Saver Fund vs Nippon India ELSS Tax Saver Fund
This article provides an in-depth comparative analysis of two prominent ELSS funds in India: Bandhan ELSS Tax Saver Fund and Motilal Oswal ELSS Tax Saver Fund. Both funds boast impressive track records and favourable tax benefits and cater to long-term wealth creation. But which one aligns best with your investment goals and risk appetite?
# – Bandhan ELSS Tax Saver Fund
Bandhan ELSS Tax Saver Fund is an open-ended equity scheme that belongs to Bandhan Mutual Fund. It is a well-established tax-saving mutual fund scheme launched in December 2008 and currently has an AUM of Rs 7,178.74 crore (as of July 31, 2024).
Bandhan ELSS Tax Saver Fund aims to generate long-term capital appreciation by predominantly investing in a diversified portfolio of equity and equity-related instruments across market capitalizations. The fund’s objective aligns with long-term financial goals like retirement, children’s education, or wealth accumulation.
Bandhan ELSS Tax Saver Fund is benchmarked against NIFTY 500 – TRI as a primary index. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.
# – Motilal Oswal ELSS Tax Saver Fund
Motilal Oswal ELSS Tax Saver Fund is an open-ended equity scheme and belongs to Motilal Oswal Mutual Fund. It is a popular tax-saving scheme launched in January 2015 and currently holds an AUM of Rs 3,835.43 crore.
Motilal Oswal ELSS Tax Saver Fund is a compelling option for investors seeking tax benefits along with the potential for substantial long-term returns. Its diversified portfolio and consistent performance make it a strong contender in the ELSS category.
Motilal Oswal ELSS Tax Saver Fund is benchmarked against NIFTY 500 – TRI as a primary index. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.
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Investment Style and Philosophy:
– Bandhan ELSS Tax Saver Fund: follows a multi-cap strategy, investing across large-cap, mid-cap, and small-cap stocks. The fund aims to balance risk and reward by spreading investments across different market segments.
The fund ensures that investments are spread across a range of sectors, mitigating concentration risk. By diversifying its holdings across industries, the fund manager seeks to reduce volatility and capture opportunities in various sectors.
– Motilal Oswal ELSS Tax Saver Fund: adopts a bottom-up stock-picking strategy, where the emphasis is on selecting individual companies based on their fundamentals, rather than making investment decisions based on macroeconomic factors or sector trends.
Motilal Oswal follows a buy-and-hold approach, with the intent of remaining invested in stocks for the long term. The fund aims to benefit from the compounding potential of well-chosen stocks by holding them through market ups and downs.
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Performance Comparison: Scheme Returns
Scheme Name Absolute (%) CAGR (%) 1 Year 3 Years 5 Years 7 Years 10 Years Motilal Oswal ELSS Tax Saver Fund(G)-Direct Plan 46.33 25.39 21.14 17.34 – Bandhan ELSS Tax Saver Fund(G)-Direct Plan 31.66 25.13 21.63 18.38 19.25 ELSS – Category Average 31.00 21.05 18.97 15.80 17.04 Benchmark – Nifty 500 TRI 30.34 20.08 17.81 15.62 15.49 Data as of July 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)As we can see from the above table, when comparing the market performance of the Bandhan ELSS Tax Saver Fund and the Motilal Oswal ELSS Tax Saver Fund based on both short-term and long-term returns, it's evident that both funds have performed above the benchmark and category averages in recent years. However, their returns vary depending on the time horizon, reflecting differences in fund strategies and stock selection.
Over a three-year period, the performance of both funds becomes more aligned. The Motilal Oswal ELSS Fund recorded a CAGR of 25.39%, slightly ahead of the Bandhan ELSS Tax Saver Fund at 25.13%. However, in the five-year horizon, the Bandhan Fund edged out with a CAGR of 21.63%, marginally better than Motilal Oswal's 21.14%. Both funds continued to outperform the category average of 21.05% for three years and 18.97% for five years, reflecting their ability to sustain returns during various market cycles.
Looking at longer investment horizons, the Bandhan ELSS Tax Saver Fund consistently outperforms the Motilal Oswal ELSS Tax Saver Fund. Over seven years, the Bandhan Fund delivered a CAGR of 18.38%, higher than Motilal Oswal's 17.34%. This steady outperformance can be attributed to Bandhan's diversified portfolio strategy, which mitigates volatility and offers more stable returns in the medium to long term.
However, past returns should not be the only element to consider when choosing the best ELSS mutual funds. One may consider the other factors & their suitability towards these ELSS.
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Portfolio Composition: Asset Allocation of Schemes
Both Bandhan ELSS Tax Saver Fund and Motilal Oswal ELSS Tax Saver Fund are amongst the popular and best ELSS mutual funds for tax-saving investments, but their asset allocation strategies differ slightly.
Scheme Name Large Cap % Mid Cap % Small Cap % Motilal Oswal ELSS Tax Saver Fund 35.31 39.78 24.17 Bandhan ELSS Tax Saver Fund 66.45 16.26 15.64 Data as of July 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)The Motilal Oswal ELSS Tax Saver Fund exhibits a balanced approach, with substantial exposure to all three market capitalizations. It invests 35.31% of its assets in large-cap stocks, 39.78% in mid-caps, and 24.17% in small-cap companies.
This allocation leans towards mid-cap and small-cap stocks, signalling a strategy that targets higher growth potential by investing in relatively riskier and high-growth companies. The fund's exposure to smaller companies offers the opportunity for superior returns over the long term but also comes with higher volatility.
In contrast, the Bandhan ELSS Tax Saver Fund adopts a more conservative strategy, with a strong emphasis on large-cap stocks. The fund has allocated 66.45% of its portfolio to large-cap companies, which are generally considered stable and less volatile. The remaining assets are spread across mid-cap stocks (16.26%) and small-cap stocks (15.64%), indicating a more cautious approach to investing in smaller companies. This fund's higher large-cap allocation suggests that it seeks to provide steady returns with relatively lower risk compared to its peers.
The overall asset allocation strategies of both funds reflect their respective approaches to balancing risk and return. Motilal Oswal ELSS Tax Saver Fund offers an aggressive strategy targeting higher growth with major allocation to mid and small-cap stocks, while Bandhan ELSS Tax Saver Fund provides a more conservative approach aimed at stability and consistent performance with high allocation to large caps.
This diversified allocation across different market capitalisations allows both funds to cater to investors with varying risk appetites and investment horizons, aiming for long-term capital appreciation alongside tax benefits.
[Read: 4 Best ELSS for 2024 – Top Performing Tax Saving Mutual Funds in India]
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Market volatility: Risk Profile of Schemes
Investing in ELSS funds offers tax benefits alongside the growth potential, but understanding their risk-reward profiles is crucial before choosing.
Risk Ratio Motilal Oswal ELSS Tax Saver Fund Bandhan ELSS Tax Saver Fund Standard Deviation (3 Year) 15.68 14.14 Sharpe 0.35 0.31 Sortino 0.70 0.60 Data as of July 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. The Motilal Oswal ELSS Tax Saver Fund has a higher standard deviation of 15.68 compared to 14.14 for the Bandhan ELSS Tax Saver Fund. This suggests that Motilal Oswal's fund experiences greater fluctuations in its returns, meaning it has higher inherent volatility. Investors in the Motilal Oswal ELSS may need to be prepared for sharper ups and downs, which could either enhance or diminish returns depending on market conditions. On the other hand, the Bandhan ELSS Tax Saver Fund is relatively less volatile, indicating a more stable ride for investors who prefer a lower risk tolerance.
The Motilal Oswal ELSS Tax Saver Fund has a Sharpe ratio of 0.35, slightly higher than the 0.31 of the Bandhan ELSS Tax Saver Fund. This implies that, despite the higher volatility, Motilal Oswal's fund is delivering more returns for the risk it takes. In contrast, while the Bandhan ELSS fund is less volatile, its risk-adjusted return is slightly lower, which suggests that it may not compensate investors as well for the risks they are taking.
The Motilal Oswal ELSS Tax Saver Fund has a higher Sortino ratio of 0.70, compared to 0.60 for the Bandhan ELSS Tax Saver Fund. This indicates that Motilal Oswal's fund has been more efficient in managing downside risks, providing better protection during periods of negative returns. Bandhan ELSS, while still effective, has shown a slightly lower ability to shield its investors from downside volatility, which may be a consideration for risk-averse investors.
Remember, this comparison is just to give you an idea about the risk profile of both the ELSS. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.
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Top Holdings of the Schemes:
Bandhan ELSS Tax Saver Fund Motilal Oswal ELSS Tax Saver Fund Company % Assets Company % Assets HDFC Bank Ltd. 5.40 Zomato Ltd. 7.51 ICICI Bank Ltd. 5.08 Trent Ltd. 6.69 Reliance Industries Ltd. 4.82 Prestige Estates Projects Ltd. 5.00 Axis Bank Ltd. 3.74 Kalyan Jewellers India Ltd. 4.98 Infosys Ltd. 3.64 Suzlon Energy Ltd. 4.35 Bharti Airtel Ltd. 2.49 Inox Wind Ltd. 3.80 NTPC Ltd. 2.32 Bharat Dynamics Ltd. 3.78 CG Power and Industrial Solutions Ltd. 2.15 CG Power and Industrial Solutions Ltd. 3.60 Jindal Steel & Power Ltd. 2.07 Apar Industries Ltd. 3.57 Cipla Ltd. 1.94 Kaynes Technology India Ltd. 3.46 Data as of July 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)The Bandhan ELSS Tax Saver Fund focuses heavily on large-cap companies, with its top holdings including HDFC Bank Ltd. (5.40%), ICICI Bank Ltd. (5.08%), and Reliance Industries Ltd. (4.82%). These are among India's leading blue-chip companies, representing strength in the financial sector and industrial giants.
Sectorally, the fund leans towards financial services, with major investments in top Indian banks and financial institutions. It also includes companies from telecom, such as Bharti Airtel Ltd. (2.49%), and the power sector with investments in NTPC Ltd. (2.32%), reflecting its broad-based exposure to the Indian economy.
The Motilal Oswal ELSS Tax Saver Fund presents a more sector-agnostic approach with a bias towards mid-cap and growth-oriented companies. Its largest holding is Zomato Ltd. (7.51%), a leading player in the food delivery industry, reflecting a strong focus on emerging sectors and companies with high growth potential.
Similarly, Trent Ltd. (6.69%), a major retail company, and Prestige Estates Projects Ltd. (5.00%), a real estate developer, highlight the fund's preference for consumer-focused and real estate sectors, catering to India's urban growth story. Additionally, companies like Inox Wind Ltd. (3.80%) and Bharat Dynamics Ltd. (3.78%) suggest exposure to industrial manufacturing and defence sectors, which are positioned for long-term growth due to government initiatives and global demand.
Investors looking for stability and a focus on large-cap companies may prefer the Bandhan ELSS Tax Saver Fund, given its reliance on established players in critical sectors like banking, IT, and energy. In contrast, those with a higher risk appetite who are looking to capture significant growth from emerging sectors may find the Motilal Oswal ELSS Tax Saver Fund a better choice.
Both funds appear to have a significant allocation across sectors, which is common for many ELSS funds. This could be a good choice for long-term wealth creation but also carries inherent market risks associated with the various sectors.
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Expense Ratio of the Schemes
When comparing ELSS funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of Bandhan ELSS Tax Saver Fund vs. Motilal Oswal ELSS Tax Saver Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio Bandhan ELSS Tax Saver Fund 0.63% 1.74% Motilal Oswal ELSS Tax Saver Fund 0.65% 1.83% Data as of July 31, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)Motilal Oswal ELSS Tax Saver Fund has a marginally higher expense ratio than Bandhan ELSS Tax Saver Fund in both Regular and Direct plans. However, both funds are considered to have moderate expense ratios relative to the ELSS category peers.
While the difference between the two funds' expense ratios is minimal under the regular plan, even a small percentage point difference can accumulate over time and impact your returns. However, under the Direct plan, the Bandhan ELSS Tax Saver Fund offers a lower expense ratio and attracts investors being a cost-effective option for investors.
Remember, a lower expense ratio translates to potentially higher returns over time, but a lower Expense Ratio should not be the only factor to be considered while investing in ELSS.
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Suitability of Investors to the Schemes:
Bandhan ELSS Tax Saver Fund is suitable for investors who seek moderate risk with balanced growth. Its focus on a diversified portfolio allows investors to mitigate risks associated with market volatility, making it appropriate for those with a moderate risk appetite and a long-term investment horizon. Its investment strategy is relatively conservative compared to funds that take concentrated bets.
This fund is ideal for first-time equity investors or those who prefer a more stable equity portfolio with exposure to a variety of sectors and companies. The three-year lock-in period works well for investors who can stay invested for longer periods to benefit from the potential upside of the equity market, while also gaining tax advantages.
Motilal Oswal ELSS Tax Saver Fund is suitable for investors who are willing to take on higher risk for the possibility of higher returns. It is not recommended for conservative investors who may be uncomfortable with periods of volatility. This fund is more appropriate for experienced equity investors who understand the risks of concentrated bets and are looking for higher capital appreciation in the long term.
However, investors should be prepared for short-term market fluctuations, as the fund's performance is tied to overall market conditions.
To summarise…
Both Bandhan ELSS Tax Saver Fund and Motilal Oswal ELSS Tax Saver Fund are strong contenders in the ELSS category, offering tax benefits and potential long-term growth. While DSP ELSS has demonstrated consistent performance and a robust investment approach, Nippon India ELSS has shown promise with its focus on specific sectors.
Bear in mind that both funds remain subject to market risks. Ultimately, a thorough evaluation of your risk appetite, investment horizon, and portfolio needs will guide you towards the ELSS that best aligns with your financial goals. Remember, diversification across the best ELSS mutual funds can further manage risk and optimise your tax-saving strategy.
This article first appeared on PersonalFN here
