Equity-Linked Savings Schemes (ELSS) have managed to keep pace with their open-ended diversified peers during the year. These funds averaged a return of 1.4 per cent during the year, a tad higher than the diversified fund category average. What's more, two in three funds have bettered the one-year performance of the bellwether index Sensex. Their three-year performance record also has perked up, with an average 27.1 per cent compounded return.

TOP OF THE CHART

But like any funds' category, the ELSS funds too displayed a wide divergence in performance during the year. While the top three funds — ICICI Pru RIGHT (closed), BNP Paribas Tax Advantage, and Axis Long-Term Equity delivered between 9-12 per cent during the year, the bottom three — Escorts Tax Plan, Tata Infrastructure Tax Saving (closed) and DWS Tax Saving, shed approximately 5-10 per cent.

Interestingly, the top return in this category is only four percentage points lower than the one-year return put in by Magnum Emerging Business, the top diversified fund during the year. The divergence in performance between the top funds in both the categories is, however, conspicuous during a three-year period. While Magnum Emerging delivered 50 per cent compounded returns during the time period, ICICI Pru Tax, the top tax-saving fund, returned 39 per cent only.

CONSISTENT PERFORMERS

Funds such as Religare Tax Plan, Sahara Tax Gain, Fidelity Tax Advantage, Franklin India Tax Shield, and Tata Tax Advantage, have consistently stayed ahead of the Sensex during one-, three- and five-year periods. Canara Robeco Equity Tax Saver is another fund that's maintained a consistent returns record during the years. It merits note here that the fund had capped its NAV slide to 47 per cent in 2008, way better than most peers. That inflows are locked-in for at least three years also helps these funds adopt a slightly longer-term investment strategy.

Some others such as Birla Sun Life Tax Relief '96, L&T Tax Saver, DSP BR Tax Saver, and ING Tax Savings, though, saw a sudden fall in their one-year return. An interim hike in cash allocation in Birla Sun Life Tax Relief '96 for a couple of months last year, and a consistent top exposure to Reliance Industries, which has been an underperformer, seems to have capped its performance. In contrast, funds such as Escorts Tax Plan, DWS Tax Savings, Principal Personal Tax Saver JM Tax Gain, and Baroda Pioneer ELSS '96, have consistently underperformed the Sensex during one, three- and five-year periods.

ELSS funds, as a category, seem to have restricted their mid-cap exposure, having burnt their fingers in the 2008 market meltdown; mid-cap segment allocation now ranges from 30-40 per cent.

TAX BENEFITS

While tax-saving funds are covered under Section 80C presently, they will cease to have tax benefits from April 2012 if the Direct Tax Code is adopted in its current form.

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