Introduction: The Battle of the Heavyweights
In the realm of Equity Linked Savings Schemes (ELSS), two titans stand out: the SBI ELSS Tax Saver Fund Direct Growth and the DSP ELSS Tax Saver Fund Direct Plan Growth. Both funds offer investors the dual benefit of tax savings and potential wealth creation. However, choosing between them requires a deep dive into their performance metrics, risk profiles, and portfolio compositions. This analysis will guide you through the nuances of each fund, helping you make an informed investment decision.
Performance Breakdown: Returns vs Risk
Rolling Returns
When it comes to rolling returns, both funds have demonstrated strong performance, but with slight variations:
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SBI ELSS Tax Saver Fund:
- 1-Year Rolling Return: 16.17%
- 3-Year Rolling Return: 24.67%
- 5-Year Rolling Return: 19.8%
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DSP ELSS Tax Saver Fund:
- 1-Year Rolling Return: 16.66%
- 3-Year Rolling Return: 22.09%
- 5-Year Rolling Return: 17.76%
The SBI fund edges out slightly in the 3-year and 5-year horizons, indicating a more consistent performance over the medium to long term.
Capital Protection During Market Crashes
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SBI ELSS Tax Saver Fund:
- Max Drawdown (1-Year): -6.92%
- Recovery Days: 270
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DSP ELSS Tax Saver Fund:
- Max Drawdown (1-Year): -6.16%
- Recovery Days: 274
While both funds have similar drawdown percentages, the DSP fund has a marginally better record in terms of quicker recovery, suggesting slightly better capital protection during downturns.
Risk-Adjusted Performance
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Sharpe Ratio:
- SBI: 1.2876
- DSP: 1.0765
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Sortino Ratio:
- SBI: 2.0291
- DSP: 1.9408
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Alpha:
- SBI: 7.0836
- DSP: 4.2805
The SBI fund outperforms the DSP fund across all risk-adjusted metrics, indicating that it offers better returns per unit of risk and superior downside protection. Its higher alpha also suggests it has consistently outperformed its benchmark, making it a better compounder on a risk-adjusted basis.
Portfolio Overlap & Sector Bets
Sector Allocation
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SBI ELSS Tax Saver Fund:
- Financial: 32.23%
- Energy: 13.17%
- Technology: 8.35%
- Metals & Mining: 8.04%
- Healthcare: 6.78%
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DSP ELSS Tax Saver Fund:
- Financial: 38.51%
- Technology: 9.17%
- Energy: 9.08%
- Healthcare: 7.88%
- Automobile: 7.54%
The DSP fund's heavier allocation to Financials (38.51%) compared to SBI's (32.23%) has likely contributed to its robust short-term performance, especially given the financial sector's resilience. However, SBI's diversified exposure across sectors like Energy and Metals & Mining has provided it with a balanced growth trajectory over the longer term.
Portfolio Overlap
Both funds share a 40.75% overlap in their holdings, with significant common investments in companies like HDFC Bank Ltd., Axis Bank Ltd., and State Bank of India. This overlap suggests that while they have distinct strategies, they also share a core belief in certain high-performing stocks.
The Final Verdict: Which Should You Buy?
For aggressive investors seeking higher risk-adjusted returns and superior long-term growth, the SBI ELSS Tax Saver Fund Direct Growth is the better choice. Its strong alpha, superior Sharpe and Sortino ratios, and consistent rolling returns make it an attractive option for those with a long-term horizon.
Conversely, conservative investors or those with a shorter investment horizon might prefer the DSP ELSS Tax Saver Fund Direct Plan Growth. Its slightly better capital protection during downturns and quicker recovery times offer a cushion against market volatility.
Ultimately, both funds are formidable contenders in the ELSS category, but your choice should align with your risk tolerance and investment goals.