Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund: Pick Your Tax-Saving Option

May 17, 2024 / Reading Time: Approx. 10 mins

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Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund: Pick Your Tax-Saving Option

As the calendar flips to a new financial year, so does the focus for many individuals shift towards tax planning for the upcoming financial year (FY) 2024-25. Despite the fact taxes are inevitable, the good news is there are ways to save a significant portion of your hard-earned income through smart investment choices.

While various tax-saving instruments exist, Equity Linked Savings Schemes (ELSS) within Mutual Funds (MFs) offer a compelling combination of growth potential, tax benefits, and long-term wealth creation. Offering market-linked returns coupled with tax benefits, these funds attract investors seeking long-term wealth creation alongside the unique benefit of a tax deduction of up to Rs 1.5 lakh under Section 80C.

[Read: Why ELSS Is Your Best Choice to Build Wealth and Save Tax]

Unlike other tax-saving options with lock-in periods of several years, ELSS has a relatively shorter lock-in period of three years from the date of investment. This provides some liquidity if needed. With a plethora of ELSS funds available, selecting the right one requires careful consideration.

This article delves into the world of Equity Linked Savings Schemes (ELSS), highlighting two popular contenders, Parag Parikh ELSS Tax Saver Fund and Kotak ELSS Tax Saver Fund, that have consistently garnered investor's attention.

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?

Here's a comprehensive evaluation of two prominent ELSS offerings, Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund, to aid you in making an informed investment decision.

# - Parag Parikh ELSS Tax Saver Fund

Parag Parikh ELSS Tax Saver Fund is an open-ended equity scheme that belongs to Parag Parikh Mutual Fund. It is a well-established tax-saving mutual fund scheme launched on July 29, 2019, and currently has an AUM of Rs 3360.61 crore (as of April 30, 2024).

The scheme is a popular choice among investors seeking tax benefits and the potential for long-term capital appreciation. It aims to generate capital appreciation/income from a well-diversified portfolio comprising predominantly of equity & equity-related instruments across market capitalisation.

Parag Parikh ELSS Tax Saver Fund is benchmarked against NIFTY 500 - TRI as a primary index. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.

# - Kotak ELSS Tax Saver Fund

Kotak ELSS Tax Saver Fund is an open-ended equity scheme and belongs to Kotak Mahindra Mutual Fund. It is a popular tax-saving scheme launched on November 23, 2005, and currently holds an AUM of Rs 5,608.21 crore.

Kotak Mutual Fund, established in 1998, is a pioneer in the Indian mutual fund industry with a rich legacy of over 25 years. They endeavour to focus on generating alpha through active management and dynamic asset allocation, adapting to changing market conditions.

Kotak ELSS Tax Saver Fund is benchmarked against NIFTY 500 - TRI as a primary index. Being a tax-saving scheme, it has a mandatory lock-in period of 3 years, making it suitable for long-term investors.

  • Investment Style and Philosophy:

    Parag Parikh ELSS Tax Saver Fund: has the flexibility to invest across market caps and sectors. Guided by the principles of value investing, it focuses on buying stocks that appear to be undervalued by the market, with the expectation that their price will eventually rise to reflect their true worth.

    Parag Parikh Tax Saver Fund avoids momentum bets and focuses on fundamentally sound, low-debt businesses available at reasonable valuations. The fund manager prioritises companies with healthy financials, strong competitive advantages, and sustainable business models.

    Kotak ELSS Tax Saver Fund: the scheme portfolio is constructed from a long-term perspective and follows a Flexicap approach by investing across market capitalisation. The fund aims to invest in companies with the potential for high growth, even if they are not currently undervalued.

    Focuses on identifying companies that are well-positioned to benefit from long-term trends. More open to short-term tactical calls and portfolio churn can be higher. The fund manager balances growth potential by focusing on companies with sound financials and management.

  • Performance Comparison: Scheme Returns

    Scheme Name Absolute (%) CAGR (%)
    6 Months 1 Year 3 Years 5 Years 10 Years
    Kotak ELSS Tax Saver Fund(G)-Direct Plan 17.35 25.61 21.64 14.39 18.01
    Parag Parikh ELSS Tax Saver Fund(G)-Direct Plan 17.56 25.09 25.90 - -
    ELSS - Category Average 18.37 35.21 19.39 18.43 15.73
    Benchmark - Nifty 500 TRI 18.67 23.79 19.45 12.42 12.79
    Data as of May 16, 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, Kotak ELSS and Parag Parikh ELSS both have performed at par across most timeframes. However, it's crucial to remember past performance is not a guarantee of future results.

    Despite having a short track record of over three years, the Parag Parikh Tax Saver Fund has grabbed investors' attention by showcasing superior performance. More importantly, the fund has achieved this feat at a reasonable risk. It currently stands among the top quartile performers in the ELSS category and stands out in terms of risk-adjusted returns.

    On the other hand, Kotak ELSS Tax Saver Fund has delivered significant returns across all timeframes. There's a significant drop in returns for the 5 year timeframe. This could be due to market fluctuations or a change in the fund's investment strategy during that period.

    However, do note that both the schemes have underperformed the category average in the short term; thus, one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.

  • Portfolio Composition: Asset Allocation of Schemes

    Both Parag Parikh ELSS Tax Saver Fund and Kotak ELSS Tax Saver Fund are popular choices for tax-saving investments, but their asset allocation strategies differ slightly.

    Scheme Name Large Cap % Mid Cap % Small Cap %
    Kotak ELSS Tax Saver Fund 61.83 23.98 12.18
    Parag Parikh ELSS Tax Saver Fund 64.15 7.34 10.63
    Data as of May 16, 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)
     

    Both ELSS schemes have a majority of their assets invested in Large Cap companies. This indicates a focus on relatively stable and well-established businesses that tend to be less volatile than smaller companies.

    Kotak ELSS Tax Saver Fund allocates a higher weightage to Mid Cap companies (23.98%) compared to Parag Parikh ELSS Tax Saver Fund (7.34%). This suggests a slightly higher appetite for potential growth opportunities in the mid-cap space while maintaining a strong large cap base.

    Parag Parikh ELSS Tax Saver Fund allocates a slightly higher weightage to Small Cap companies. This indicates a potential bias towards capturing higher growth potential at the cost of higher volatility associated with smaller companies.

    Both funds follow a large cap-oriented strategy, prioritising stability and potentially lower risk. Kotak ELSS Tax Saver Fund has a slightly more balanced approach with a higher allocation to mid-caps. Parag Parikh ELSS Tax Saver Fund has a slightly more aggressive tilt with a higher allocation to small caps.

    [Read: 4 Best ELSS for 2024 - Top Performing Tax Saving Mutual Funds in India]

  • 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 Kotak ELSS Tax Saver Fund Parag Parikh ELSS Tax Saver Fund
    Standard Deviation (3 Year) 13.32 11.20
    Sharpe 0.35 0.42
    Sortino 0.67 0.90
    Data as of May 16, 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. Kotak ELSS Tax Saver Fund with a standard deviation of 13.32%, this fund exhibits higher volatility compared to Parag Parikh ELSS Tax Saver Fund (11.20%). This suggests potentially higher risk associated with investing in Kotak ELSS.

    Both funds have relatively low Sharpe Ratios. This indicates that the average return they offer may not be much higher than the risk-free rate compared to the volatility they experience. Parag Parikh ELSS has a significantly higher Sortino Ratio (0.90) compared to Kotak ELSS this indicates that Parag Parikh might offer better returns relative to its downside risk, making it a potentially more attractive option from a risk-reward perspective.

    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.

  • Top Holdings of the Schemes:

    Both Parag Parikh ELSS and Kotak ELSS share some of the same top holdings, including HDFC Bank, Maruti Suzuki, ICICI Bank, and Axis Bank.

    Parag Parikh ELSS Tax Saver Fund Kotak ELSS Tax Saver Fund
    Company % Assets Company % Assets
    HDFC Bank Ltd. 8.02 Maruti Suzuki India Ltd. 5.14
    Bajaj Holdings & Investment Ltd. 6.74 HDFC Bank Ltd. 4.74
    Power Grid Corporation Of India Ltd. 6.39 ICICI Bank Ltd. 4.31
    Coal India Ltd. 5.90 State Bank Of India 3.98
    ICICI Bank Ltd. 5.22 Larsen & Toubro Ltd. 3.77
    Maruti Suzuki India Ltd. 5.22 Axis Bank Ltd. 3.74
    ITC Ltd. 4.99 NTPC Ltd. 3.24
    Axis Bank Ltd. 3.92 Linde India Ltd. 2.94
    Tata Consultancy Services Ltd. 3.86 Bosch Ltd. 2.72
    HCL Technologies Ltd. 3.71 Reliance Industries Ltd. 2.62
    Data as of May 16, 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)
     

    Parag Parikh ELSS with Coal India and Power Grid Corporation in the top holdings, there might be a slight tilt towards the energy and utilities sector. However, the presence of HDFC Bank, Bajaj Holdings (financial services), and ITC (FMCG) suggests diversification.

    Under Kotak ELSS, the top holdings are primarily large-cap companies across diverse sectors like automobiles (Maruti Suzuki), banking (HDFC Bank, ICICI Bank), and engineering (Larsen & Toubro). It's difficult to pinpoint a specific sectoral bias.

    Both funds appear to have a significant allocation towards the financial sector, which is common for many ELSS funds. This could be a good choice for long-term wealth creation but also carries inherent risks associated with the banking industry.

  • 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 Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund:

    Scheme Name Direct Plan Expense Ratio Regular Plan Expense Ratio
    Parag Parikh ELSS Tax Saver Fund 0.61% 1.71%
    Kotak ELSS Tax Saver Fund 0.58% 1.77%
    Data as of May 16, 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)
     

    Kotak ELSS Tax Saver Fund has a marginally lower Expense Ratio (0.58%) compared to Parag Parikh ELSS Tax Saver Fund (0.61%) in the Direct Plan and a higher Expense Ratio in the Regular Plan. There is only a slight difference between the expense ratios of both schemes. However, both funds are considered to have low expense ratios relative to the ELSS category peers.

    While the difference between the two funds' expense ratios is minimal, even a small percentage point difference can accumulate over time and impact your returns. 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.

    [Read: How to Select the Best ELSS for Tax-saving in 2024]

  • Suitability of Investors to the Schemes:

    Parag Parikh ELSS Tax Saver Fund could be suitable for investors with a high-risk tolerance. While value investing aims to mitigate risk, stock markets are inherently volatile. This fund's focus on quality companies and lower portfolio turnover suggests it's suited for investors seeking long-term investment horizon.

    Kotak ELSS Tax Saver Fund could be ideal for investors with moderate to high-risk tolerance and who are comfortable with short-term fluctuations since the fund's focus on growth potential suggests it might experience higher volatility in the short term. While growth stocks can be volatile in the short term, they can deliver significant returns over the long haul, one may emphasise on the long-term investment approach.

To summarise...

Both Parag Parikh ELSS Tax Saver Fund and Kotak ELSS Tax Saver Fund are well-established funds with proven track records. Parag Parikh's value approach may offer capital preservation and a smoother ride, while Kotak's focus on growth caters to those comfortable with higher volatility in pursuit of potentially higher returns.

Bear in mind 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 multiple ELSS funds can further manage risk and optimise your tax-saving strategy.

Note: In my previous mutual fund comparison articles I have also covered a comparative analysis between the Top 4 ELSS for 2024, you may consider reading -

Best 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

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.

 


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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