ELSS Schemes – Not so hot!

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There is a large churn in the fund management industry as pressure to perform takes its toll on star money managers – greener pastures in Alternative Investing and Private equity seem to also be playing that  extra role in driving manager exodus.

This begets a question – Are fund managers capable of performing better if they had no pressure on month on month performance or redemptions and had the freedom to remain fully invested across cycles.

While the answer, whatever it may be, may be theoretical at best, one clear guidance to whether fund managers without restraints can perform better than ones that can, lies in  the performance of ELSS schemes. These schemes are often positioned as better than open ended funds for the average investor not only for the tax benefits (which are good if you are a fairly small investor but irrelevant for larger ones) but also that it would give the fund manager much more freedom to deliver returns with high conviction  stocks (as these are closed ended funds which do not come under pressure due to regular and abrupt outflows) or regular portfolio questioning (We doubt if ELSS scheme investors question decisions as much as open ended scheme investors do).

So if ELSS schemes remove some of the shackles, shouldn’t they be doing better than normal open ended schemes?

Alas, the facts point to the fact that this isn’t the case. Normal categories of open ended funds have easily outperformed or matched returns from ELSS schemes despite all the so called pressure on performance over the previous few years as the following table shows- At best, in most cases, ELSS performance was average across categories and nothing exceptional sticks out!

Annualised Returns % of Scheme Categories
1Y 3Y 5Y 10Y
Small Cap Funds 18.55 21.58 31.21 15.84
Midcap Funds 13.73 15.92 24.75 14.8
ELSS 14.41 13.64 18.96 10.94
Multicap Funds 13.64 13.77 18.83 11.26
Balanced Funds 10.57 10.67 15.99 10.81
Largecap Funds 13.87 10.84 14.75 9.63
As of May 8, 2018


All the more reason that one doesn’t get swayed by sales tactics and instead focuses on sound analysis of each scheme’s performance and not the other frills around it. Talk to us if you want to know more or mail us at mfss@plindia.com for information on our recommended allocations and schemes.


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