Choosing the Right ELSS: SBI Long Term Equity Fund vs Mirae Asset ELSS Tax Saver Fund
February 24, 2024 Mutual Fund
Tax season brings the opportunity to optimise your finances and reduce your tax burden. Choosing the right tax-saving investment scheme, like an Equity Linked Saving Scheme (ELSS), plays a crucial role in this process.
Unlike fixed-income tax-saving options, ELSS schemes invest primarily in equities. While carrying inherent market risks, they also have the potential to generate significantly higher returns over the long term. ELSS schemes offer tax deductions up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
ELSS schemes offer various investment options, including lump sum investments and Systematic Investment Plans (SIPs). SIPs allow you to invest regularly in smaller amounts, inculcating financial discipline and potentially benefiting from rupee-cost averaging.
[Read: Why ELSS Is Your Best Choice to Build Wealth and Save Tax]
In 2023, the Indian stock market experienced a positive trend, with significant growth observed in key indices such as Nifty 50 and S&P BSE Sensex. This overall market uptrend contributed to the positive performance of ELSS funds. The average return for the ELSS category on a YTD basis was around 37.58%. It outperformed the S&P BSE 100 TRI (31.94%) and was at par with benchmark indices like Nifty 500 TRI (39.29%) and S&P BSE 500 TRI (38.99%).
With a multitude of ELSS available, it’s important to understand that there’s no single ‘best’ ELSS for everyone, as individual investment goals, risk tolerance, and investment horizons vary. Hence, one must consider their suitability before investing in any ELSS and make a wise choice.
Given that, the two popular contenders for ELSS funds are the SBI Long Term Equity Fund and Mirae Asset ELSS Tax Saver Fund.
[Read: Best ELSS Mutual Funds: HDFC ELSS Tax Saver Fund vs Quant ELSS Tax Saver Fund]
This article delves into a detailed comparison of two ELSS funds, SBI Long Term Equity Fund vs Mirae Asset ELSS Tax Saver Fund, aiming to equip you with the necessary insights to make an informed investment decision.
SBI Long Term Equity Fund is an open-ended equity scheme that belongs to SBI Mutual Fund. It is a well-established tax-saving mutual fund scheme launched on March 31, 1993, and currently has an AUM of Rs 20,085.15 crores (as of Jan 31, 2024).
The scheme offers capital appreciation through exposure to large, established companies with a proven track record. The fund witnessed a prolonged dull phase between 2016 and 2020, wherein it stood among the bottom quartile performers. However, the fund has shown a remarkable recovery in the last few years to stand strong among its peers.
SBI Long Term Equity Fund is benchmarked against S&P BSE 500- TRI as a primary index and S&P BSE Sensex- TRI as a secondary index. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.
# – Mirae Asset ELSS Tax Saver Fund
Mirae Asset ELSS Tax Saver Fund is an open-ended equity scheme and belongs to Mirae Asset Mutual Fund. It is a popular tax-saving scheme launched in December 2015 and currently holds an AUM of Rs 20,949. 94 crores (as of Jan 31, 2024).
Mirae Asset Mutual Fund, established in 2008, is a prominent asset management company in India. Many of their equity funds have delivered positive returns in the past year, with some performing exceptionally well. The fund house endeavours to create innovative investment solutions and cater to diverse investor needs.
Mirae Asset ELSS Tax Saver Fund is benchmarked against NIFTY 500 – TRI as a primary index and S&P BSE Sensex – TRI as a secondary 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:
– SBI Long Term Equity Fund Focuses primarily on large-cap and mid-cap stocks and has a decent allocation to small-cap stocks. The scheme aims to invest across the market cap to benefit from diversification. It also lays emphasis on sectoral themes that are expected to grow over the medium to long term.
The SBI Long Term Equity Fund has a strong track record of delivering long-term capital appreciation. Backed by an experienced fund management team with a focus on quality, high-growth stocks across sectors, the fund has the potential to perform well in the future as well.
– Mirae Asset ELSS Tax Saver Fund: Invests across large, mid, and small-cap stocks, offering the potential for higher returns but also carrying higher risk due to exposure to smaller companies. The fund aims to identify long-term investment opportunities in stocks of high-quality businesses available at reasonable prices and follows a buy-and-hold investment strategy until its full potential is derived.
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Performance Comparison: Scheme Returns
Scheme Name Absolute (%) CAGR (%) 6 Months 1 Year 3 Years 5 Years 7 Years 10 Years SBI Long Term Equity Fund (G)-Direct Plan 31.06 58.76 27.62 23.14 17.86 18.57 Mirae Asset ELSS Tax Saver Fund(G)-Direct Plan 17.37 35.90 19.20 21.92 19.54 – ELSS – Category Average 19.82 37.58 18.85 18.31 14.90 17.02 Benchmark – Nifty 500 TRI 20.36 39.29 19.68 19.13 16.10 16.88 Data as of February 23, 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, SBI Long Term Equity Fund has consistently outperformed Mirae Asset ELSS across most timeframes, particularly exceeding by a significant margin in the recent 3-year period. However, it’s crucial to remember past performance is not an indicator of future results.
Both funds have delivered positive returns over various timeframes. SBI Long Term Equity Fund delivered strong historical returns, particularly in the last year, and its performance over longer periods has been relatively consistent.
While Mirae Asset ELSS Tax Saver Fund has offered lower returns as compared to SBI Long Term Equity Fund, historically, it has outperformed its benchmark index in the 5-7 year period. The scheme’s performance in 2023 was lower than the S&P BSE 500 TRI benchmark and its peer, SBI Long Term Equity Fund.
This could be due to higher allocation in mid-cap stocks amidst 2023, when the market saw a correction in mid-cap stocks, impacting the fund’s returns. However, looking at one-year returns alone can be misleading; one may consider analysing a longer track record.
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Portfolio Composition: Asset Allocation of Schemes
Both SBI Long Term Equity Fund and Mirae Asset ELSS Tax Saver are well-known choices for tax-saving investments, but their asset allocation strategies differ slightly.
Scheme Name Large Cap % Mid Cap % Small Cap % SBI Long Term Equity Fund 52.25 23.71 15.19 Mirae Asset ELSS Tax Saver Fund 63.13 19.30 16.92 Data as of January 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)SBI Long Term Equity Fund prioritises established, large-cap companies, typically exceeding Rs 100,000 crore in market capitalisation. This approach offers stability and consistency, with these companies demonstrating strong fundamentals and less volatile growth.
Mirae Asset ELSS Tax Saver Fund allocates funds across the market capitalisation spectrum, including large, mid, and small-cap stocks. This broadens its exposure to potential growth opportunities across different market segments.
[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 potential for growth, but understanding their risk-reward profiles is crucial before choosing.
Risk Ratio SBI Long Term Equity Fund Mirae Asset ELSS Tax Saver Fund Standard Deviation (3 Year) 14.32 13.84 Data as of February 23, 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)SBI Long Term Equity Fund boasts a slightly higher SD (14.32%) compared to Mirae Asset ELSS (13.84%). An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk.
Although SBI Long Term Equity Fund offers potentially higher returns, it exposes you to greater volatility. The scheme currently holds a higher exposure to mid and small cap stocks, which are considered to be highly volatile and sensitive to price fluctuations.
Mirae Asset ELSS Tax Saver Fund, though slightly less flashy in returns, presents a steadier option. The scheme leans more towards large-cap stocks, known for their relative stability as compared to SBI ELSS.
However, bear in mind 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:
SBI Long Term Equity Fund leans towards mid and small cap stocks, aiming for higher growth potential but accepting increased risk. Its top holdings are currently GE T&D India Ltd., ICICI Bank Ltd., Bharti Airtel Ltd., Torrent Power Ltd., and Cummins India Ltd.
Mirae Asset ELSS Tax Saver Fund focuses on growth potential across sectors, with its top holdings currently including HDFC Bank, ICICI Bank, SBI, Reliance Industries Ltd., Kotak Mahindra Bank Ltd., etc. This scheme tilts towards large-cap stocks, seeking stability and lower volatility.
SBI Long Term Equity Fund Mirae Asset ELSS Tax Saver Fund Company % Assets Company % Assets GE T&D India Ltd. 3.80 HDFC Bank Ltd. 8.02 ICICI Bank Ltd. 3.80 ICICI Bank Ltd. 4.94 Bharti Airtel Ltd. 3.24 State Bank Of India 4.50 Torrent Power Ltd. 3.24 Reliance Industries Ltd. 4.09 Cummins India Ltd. 3.16 Kotak Mahindra Bank Ltd. 3.77 HDFC Bank Ltd. 3.09 Larsen & Toubro Ltd. 3.73 Mahindra & Mahindra Ltd. 2.81 Axis Bank Ltd. 3.58 State Bank Of India 2.79 Infosys Ltd. 3.12 GAIL (India) Ltd. 2.77 NTPC Ltd. 2.82 Reliance Industries Ltd. 2.75 HCL Technologies Ltd. 2.48 Data as of January 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) -
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 Mirae Asset ELSS Tax Saver Fund vs SBI Long Term Equity Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio SBI Long Term Equity Fund 0.98% 1.68% Mirae ELSS Tax Saver Fund 0.59% 1.58% Data as of January 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)Mirae Asset ELSS offers a lower expense ratio in both direct and regular plans, indicating potentially higher net returns for investors compared to SBI Long Term Equity Fund.
While the Expense Ratio shouldn’t be the sole decision factor, it’s a vital aspect to consider, especially for long-term investments like ELSS funds. Remember, a lower expense ratio translates to potentially higher returns over time.
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Suitability of Investors to the Schemes:
SBI Long Term Equity Fund could be suitable for investors comfortable with moderate risk and volatility in exchange for the potential for higher returns. It offers:
– Stability and diversification through a multi-cap approach
– Being one of the oldest and most popular schemes in the ELSS category, it offers a team of experienced fund managers
– With consistently higher returns, it has outperformed Mirae Asset ELSS Tax Saver Fund in most timeframes.
Mirae Asset ELSS Tax Saver Fund could be ideal for investors seeking stability and consistent returns with slightly moderate risk. The portfolio is skewed towards large cap stocks, and it offers:
– Higher potential returns through a balanced portfolio
– Value and growth-oriented approach
– Does not resort to taking aggressive calls for extraordinary returns but maintains a diversified portfolio of quality stocks with a long-term view.
To summarise…
Both the SBI Long Term Equity Fund and Mirae Asset ELSS Tax Saver Fund are compelling options that offer valuable tax benefits and long-term capital appreciation potential. However, the choice ultimately depends on your individual financial goals and risk tolerance.
Bear in mind that past performance is not an indicator of future results. Both funds remain subject to market risks. Remember, by understanding their distinct characteristics and aligning them with your own financial objectives, you can make an informed decision that best serves your investment journey.
This article first appeared on PersonalFN here
