Pick the Best Tax Saving Mutual Funds: BOI vs JM ELSS Tax Saver Fund
October 28, 2024 Mutual Fund
In today’s market, where economic conditions are continually evolving and investor sentiment swings between optimism and caution, ELSS funds remain a compelling choice for tax-saving investments.
In such an environment, selecting the right investment vehicle becomes paramount. Tax-saving mutual funds, particularly Equity-Linked Savings Schemes (ELSS), have become increasingly vital in investors’ portfolios, especially in the current economic climate characterised by rising inflation, fluctuating interest rates, and evolving regulatory frameworks.
With the introduction of new tax policies and financial products, investors are looking for effective ways to manage their tax liabilities while still seeking growth opportunities. Investing in the best tax-saving mutual funds can provide investors with an opportunity to benefit from the upside of equity markets while simultaneously enjoying tax benefits.
This combination makes ELSS an essential component of a well-rounded investment strategy, particularly for those who are also looking to create wealth over time. As equity markets continue to evolve, with sectors such as technology, healthcare, and renewable energy showing significant growth potential, ELSS funds can be a strategic way to gain exposure to these high-growth areas.
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.
[Read: How to Select the Best Suitable Tax-saving Option for You]
Note: In my previous ELSS/tax-saving mutual fund comparison reports, I have covered a comprehensive analysis of the top 10 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
Bandhan vs Motilal Oswal ELSS Tax Saver Fund: Which ELSS Suits Your Portfolio?
This article provides an in-depth comparative analysis of two best ELSS mutual funds in India: Bank of India ELSS Tax Saver Fund and JM 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?
# – Bank of India ELSS Tax Saver Fund
Bank of India ELSS Tax Saver Fund is an open-ended equity scheme that belongs to Bank of India Mutual Fund. It is a well-established tax-saving mutual fund scheme launched in February 2009 and currently has an AUM of Rs 1,485.63 crore (as of September 30, 2024).
Bank of India ELSS Tax Saver Fund aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities across all market capitalisations. The Scheme follows a flexible investment approach, diversifying across large-cap, mid-cap, and small-cap companies.
The fund’s investment team focuses on selecting high-growth potential stocks in various sectors, intending to capitalise on India’s economic growth. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.
JM ELSS Tax Saver Fund is an open-ended equity scheme and belongs to JM Financial Mutual Fund. It is a popular tax-saving scheme launched in March 2008 and currently holds an AUM of Rs 186.75 crores.
This fund aims to provide investors with opportunities for wealth creation over an extended period, aligning with the mandatory lock-in period of 3 years typical for ELSS funds. To reduce concentration risks, the JM ELSS Tax Saver Fund maintains a well-balanced exposure across various sectors and does not heavily favour any particular market capitalisation. This approach provides the fund with flexibility and potential resilience during market fluctuations.
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Investment Style and Philosophy:
– Bank of India ELSS Tax Saver Fund: follows a blend of growth and value investing principles. It typically invests across a diversified portfolio of equity securities in large-cap, mid-cap, and small-cap segments, aiming to balance returns and risk.
By carefully balancing sector allocations, the fund seeks to mitigate risks related to specific sectors while harnessing opportunities in cyclical uptrends. With a medium- to long-term horizon, this strategy allows investors to navigate market fluctuations while capitalising on growth opportunities.
– JM ELSS Tax Saver Fund: is grounded in a growth-oriented approach, focusing predominantly on high-growth sectors and companies that exhibit strong earnings potential. The fund's philosophy revolves around capturing long-term growth in Indian equities by investing in companies with high growth rates and substantial future earnings potential.
The fund managers adopt a flexible allocation strategy, dynamically adjusting to evolving market conditions while maintaining exposure to sectors poised for long-term growth.
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Performance Comparison: Scheme Returns
Scheme Name Absolute (%) CAGR (%) 1 Year 3 Years 5 Years 7 Years 10 Years JM ELSS Tax Saver Fund(G)-Direct Plan 43.34 22.91 22.28 18.41 19.10 Bank of India ELSS Tax Saver Fund(G)-Direct Plan 46.87 24.04 26.97 21.01 19.80 ELSS – Category Average 34.22 20.30 20.00 16.11 16.85 Benchmark – Nifty 500 TRI 33.15 19.23 19.00 15.95 15.56 Data as of October 25, 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, Both the BOI ELSS Tax Saver Fund and JM ELSS Tax Saver Fund have demonstrated impressive market performance, surpassing the ELSS category average and their benchmark index, the Nifty 500 TRI, across various time horizons.
Over a three-year period, both funds continue to outperform, with the BOI ELSS Fund achieving a CAGR of 24.04% compared to the JM ELSS Fund's 22.91% and the ELSS category average of 20.30%. This continued outperformance suggests that both funds have successfully capitalised on growth opportunities, reflecting skilled fund management and robust stock selection that align well with market trends over the medium term.
The BOI ELSS Fund, in particular, has a slight edge, indicating its potential for greater consistent returns. Looking at longer investment horizons, both funds exhibit stable performance, with the BOI ELSS Fund continuing its lead. This consistent performance over extended periods signifies a balanced investment approach.
The BOI ELSS Fund not only achieves strong returns but also offers resilience during market fluctuations, which may appeal to risk-averse investors looking for steady growth. Whereas, the JM ELSS Fund remains competitive, investors prioritising high returns and stability may find the BOI ELSS Fund a more compelling choice for sustained wealth generation.
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 BOI ELSS Tax Saver Fund and JM 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 % JM ELSS Tax Saver Fund 47.11 17.07 22.74 Bank of India ELSS Tax Saver Fund 49.35 21.65 22.74 Data as of September 30, 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 BOI ELSS Tax Saver Fund and the JM ELSS Tax Saver Fund both emphasise large-cap stocks, but each fund's asset allocation reflects a unique investment strategy. Large-cap stocks form the backbone of these schemes, with the BOI ELSS Tax Saver Fund allocating 49.35% to this category, slightly higher than JM's 47.11%.
This strong focus on large-cap stocks indicates a conservative, stable approach designed to benefit from well-established companies that are more resilient to market fluctuations, offering investors relative safety within their equity exposure.
On the mid-cap front, the BOI ELSS Tax Saver Fund leans more heavily with a 21.65% allocation, in contrast to JM's 17.07%. This greater emphasis on mid-cap stocks shows BOI's inclination toward a growth-oriented strategy within its asset mix. Mid-cap companies typically present higher growth potential than large caps but can introduce a bit more volatility. By investing a sizable portion in this segment, BOI aims to capture opportunities in companies that are positioned for expansion, balancing stability and growth within the fund.
For small-cap exposure, both funds have a similar allocation, with each dedicating 22.74% to small-cap stocks. This consistency suggests that both fund managers see value in the potential of smaller companies, which can deliver high growth during favourable market conditions. Small-cap investments are generally riskier; they also carry the potential for significant returns, which is why both funds cap this exposure at around a quarter of their portfolios. Such a strategy enables them to tap into emerging companies without assuming excessive risk.
BOI ELSS Tax Saver Fund's higher allocation to mid-caps may appeal to investors looking for a slight edge in growth potential. Meanwhile, JM's slightly higher large-cap concentration could attract those preferring a more conservative and stable portfolio.
[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 JM ELSS Tax Saver Fund Bank of India ELSS Tax Saver Fund Standard Deviation (3 Year) 15.33 15.78 Sharpe 0.29 0.24 Sortino 0.58 0.49 Data as of September 30, 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. For JM ELSS Tax Saver Fund, the Standard Deviation is slightly lower at 15.33 compared to the BOI ELSS Tax Saver Fund, which stands at 15.78. This indicates that the JM fund has exhibited relatively less volatility, making it potentially a more stable option for risk-averse investors.
The JM ELSS Tax Saver Fund has a Sharpe Ratio of 0.29, compared to 0.24 for the BOI ELSS Tax Saver Fund. This higher Sharpe Ratio suggests that the JM fund has provided better risk-adjusted returns over the past three years. Investors looking for funds that not only generate returns but also do so with a favourable risk profile may find the JM fund more appealing based on this metric.
In terms of downside risk, the JM ELSS Tax Saver Fund boasts a Sortino Ratio of 0.58, significantly higher than the BOI ELSS Tax Saver Fund's 0.49. This indicates that the JM fund has been better at generating returns while managing downside risk, making it a more attractive option for investors concerned about potential losses during market downturns.
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:
Bank of India ELSS Tax Saver Fund JM ELSS Tax Saver Fund Company % Assets Company % Assets HDFC Bank Ltd. 4.90 HDFC Bank Ltd. 5.39 Vedanta Ltd. 4.18 Infosys Ltd. 4.97 State Bank Of India 3.99 ICICI Bank Ltd. 3.47 Oil India Ltd. 3.09 Larsen & Toubro Ltd. 3.30 NTPC Ltd. 2.85 State Bank Of India 2.65 Prudent Corporate Advisory Services Ltd. 2.28 Newgen Software Technologies Ltd. 2.28 Reliance Industries Ltd. 2.27 Zomato Ltd. 2.20 General Insurance Corporation of India 2.27 Hindalco Industries Ltd. 2.19 Tata Power Company Ltd. 2.04 Bharti Airtel Ltd. 2.12 AMI Organics Ltd. 2.02 Trent Ltd. 2.07 Data as of September 30, 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)When analysing the sector allocation of the Bank of India ELSS Tax Saver Fund, it becomes evident that the fund has a significant concentration in the financial sector, with HDFC Bank Ltd. leading as its top holding at 4.90%. The fund's second-largest allocation goes to Vedanta Ltd. at 4.18%, showcasing a mix of both financial and commodity sectors. Other noteworthy holdings include State Bank of India and Oil India Ltd., which highlight its diverse exposure to energy and utility sectors. This diverse allocation enables the fund to capitalise on various market segments while maintaining a focus on financial stability.
In contrast, the JM ELSS Tax Saver Fund also shows a strong focus on the financial sector, with HDFC Bank Ltd. as its largest holding at 5.39%, slightly surpassing its counterpart. The presence of Infosys Ltd. at 4.97% indicates the fund's strategic allocation to technology, reflecting an interest in the burgeoning IT sector.
Both funds exhibit a commitment to prominent financial institutions, albeit with slightly different sector mixes. The BOI ELSS Tax Saver Fund allocates around 15.26% to its top five holdings, while the JM ELSS Tax Saver Fund reaches approximately 17.36% in similar allocations. This suggests that while both funds emphasise financial stability, the JM fund is more diversified into technology and infrastructure.
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 BOI ELSS Tax Saver Fund vs. JM ELSS Tax Saver Fund:
Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio Bank of India ELSS Tax Saver Fund 0.84% 1.96% JM ELSS Tax Saver Fund 1.15% 2.37% Data as of September 30, 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)JM ELSS Tax Saver Fund has a marginally higher expense ratio than Bank of India 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 Bank of India 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:
Bank of India ELSS Tax Saver Fund adopts a more aggressive stance, often emphasising growth-oriented stocks. This approach can benefit investors with a higher risk tolerance, seeking potentially higher returns over the long run. The fund's focus on identifying companies with strong growth prospects may appeal to investors who are more confident in their ability to navigate market ups and downs. For those willing to take on additional risk, this fund could provide the opportunity to outperform the market, especially during bullish market conditions.
JM ELSS Tax Saver Fund can appeal to conservative investors looking for moderate risk while still aiming for reasonable capital appreciation over the long term. Its performance has been relatively stable, providing a sense of security to those who prefer a balanced investment strategy. Moreover, the fund's focus on quality stocks helps mitigate volatility, making it a suitable option for investors who may be apprehensive about market fluctuations.
However, investors should be prepared for short-term market fluctuations, as the fund's performance is tied to overall market conditions.
To summarise…
Both Bank of India ELSS Tax Saver Fund and JM ELSS Tax Saver Fund are strong contenders in the ELSS category, offering tax benefits and potential long-term growth. The BOI AXA fund offers a more aggressive growth approach, appealing to those willing to navigate the ups and downs of market volatility for potentially higher returns. On the other hand, the JM ELSS fund provides a more conservative strategy, focusing primarily on large-cap stocks, which can offer greater stability and reduced risk during market fluctuations.
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
