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Recommended ELSS for 2014
January 3, 2014

This is a brief write up on our Recommended Tax-Saving Schemes for the year 2014.


Author : iFAST Research



 Recommended ELSS for 2014

Recommended ELSS for 2014


It’s that time of the year when investors wake up from a long slumber and realize that they have only 3 months to do their tax planning before the end of the financial year. We have always been advising our investors that they should start planning to save tax at the beginning of a financial year and not wait till the eleventh hour. However, we have noticed that this advice is seldom followed. Investors start getting nightmares from January and invest in every tax-saving instrument that they can lay their hands on, which may or may not suit them. At this juncture, we would like to introduce our investors to the tax saving options available in the Mutual Fund space. The instrument we are referring to is the Equity Linked Savings Scheme (ELSS). ELSS are mandated to invest into a portfolio of equity and equity related securities which will provide capital appreciation over a long term. Unlike other instruments available for tax deduction under Section 80C of the Income Tax Act, 1961, this is the only option which allows the investor to take an exposure into equity markets which will deliver returns that has the ability to beat inflation over a period of time.

In this context, we are releasing our recommended ELSS list for 2014. The only change that has happened in this year’s annual review is that   Reliance Tax Saver (ELSS) Fund is making way for BNP Paribas Tax Advantage Plan (ELSS) as it could not clear the filters in our model. This article offers a brief insight into the recommended tax-saving funds based on the study of their respective portfolios over a period of 3 years. For the first time, we have introduced a section which will include comments from the fund manager on the outlook for the fund. We believe that a fund becomes a part of our recommended list on the basis of historical parameters and the future potential that we see for the particular fund. Hence, we thought it appropriate to include views of the person who actually manages the investor surplus.

AXIS LONG TERM EQUITY FUND

Investment Strategy

The fund will invest in a diversified portfolio of strong growth companies with a sustainable business model. Although the benchmark of the fund is S&P BSE 200, the fund enjoys the flexibility to invest across market capitalizations, industries/sectors. The investment need not be limited to companies which are a part of the benchmark index. An analysis of the market capitalization spectrum shows that the fund has increased allocation to large caps from 66% to 76% and midcaps from 8% to 17% during November 2010 to October 2013. Over the last 3 years, the portfolio’s total holdings have been in the range of 37 to 45. The total number of stocks in the portfolio as on October 2013 has been 37, out of which 10 stocks have been continuously held during the 3 years of analysis. As far as sectoral allocation is concerned, there were 3 sectors which have been among the top 5 picks during the entire period of analysis. These sectors include Banks, Computer-Software and Housing Finance whose average exposure has been 15%, 9% and 7% respectively.

Performance

A third time entrant into our recommended funds list, Axis Long Term Equity Fund continues to be the best performing ELSS in this review as well. The fund has generated a CAGR of 14.47 % and 6.95% while its benchmark has delivered 9.42% and -1.22% over a time period of 1 year and 3 years respectively.

Fund Manager’s Comments

We believe that our consistently strong results are driven by a detailed investment approach that is substantiated by rigorous research and careful, self-reliant analysis of investment opportunities. This approach is underpinned by our belief that an exhaustive understanding of the industry, company management, corporate structure and competition is needed when selecting investments. Our hard work and effort has been well rewarded with the superior returns we’ve generated while minimizing risks and avoiding investments in bad stocks. Our strategy consists of systematic due diligence of potential investments and partners against a strict investment criteria followed by focused conceptualization and planning of practical ideas that can be implemented profitably, given time horizons. Further, we look to diversify our investments across sectors to maintain a balanced portfolio and minimize our exposure to market downturns.

Some binding principles to our investment approach are as follows:

  • An immaculate and exemplary management track record that has proven it can manage businesses in all economic cycles
  • A business model that has delivered superior performance
  • High sustainable growth and return metrics
  • Attractive industry
  •  Inception Date: December 29, 2009

    Fund Manager: Jinesh Gopani

    Asset size: INR 738 crore (AUM as on October 2013)

    Exit Load: Nil

    Benchmark: S&P BSE 200

     

     BNP PARIBAS TAX ADVANTAGE PLAN (ELSS)

     Investment Strategy

    The fund aims to provide long-term capital growth by investing in a diversified and actively managed portfolio of equity and equity related securities. As far as the market capitalization of the fund is concerned, the average allocation into large caps, mid caps and small caps have been to the tune of 78%, 8% and 8% respectively during November 2010 to October 2013. During the same time period, the number of stocks held in the portfolio has been in the range of 43 to 58. In October 2013, the fund had around 44 stocks out of which only 2 stocks have made it to the portfolio during the 3 years of analysis. The 2 stocks are Infosys and HDFC Bank, whose average allocation has been around 4% and 6%. As on October 2013, the top 5 sectoral picks of the fund are Computers–Software (14%), Banks (12%), Telecom–Services (11%), Pharmaceuticals (8%) and Housing Finance (5%).  Among these sectors it is Banks and Pharmaceuticals which have been among the top 5 sectoral picks during the period of analysis with an average allocation of around 15% and 9% respectively.

    Performance

    The fund has made it to our recommended funds list for the first time. The fund has generated a CAGR of 5.08% and 18.46% over a period of 3 years and 5 years respectively, as against the benchmark which has delivered a return of -1.22% and 16.79% during the same time period.

    Fund Manager’s Comments

    The bias is maintained towards growth oriented sectors which are driven by the focus on consumption, infrastructure & economic growth. Mid Cap exposure through stock specific investments can lend a greater alpha. Accordingly, we are overweight on, Software, Banks, Telecom and Pharmaceuticals and underweight on Hotel, Media and Entertainment, and Construction. The investment is spread across 24 sectors with Top 3 sectors contributing 38.87%.

    Inception Date: January 5, 2006

     Fund Manager: Shreyash Devalkar

     Asset Size: INR 145 crore (AUM as on October 2013)

     Exit Load: Nil

     Benchmark: S&P BSE 200

     

    CANARA ROBECO EQUITY TAX SAVER

    Investment Strategy

    The fund’s investment strategy is to identify companies which have a strong competitive position in a good business and have a quality management to support it. The fund will follow an active investment style and the main focus would be on long-term fundamentally driven values. An analysis of the market capitalization trends over the last 3 years (November 2010-October 2013) shows that the fund has been showing an increasing bias towards the large cap space. This can be seen from the fact that the fund’s large cap exposure has increased from 69% in November 2010 to 89% in October 2013. On the other hand, the fund has reduced the exposure into small caps from 13% to 2% during the same period. A closer look at the portfolio reveals that the stock count has been in the range of 50 to 60.As  on October 2013, the fund has around 57 stocks out of which 10 of them have been a part of the portfolio during the above mentioned time period. A detailed analysis of the portfolio shows that HDFC Bank has been among the top 5 holdings in the fund during all the months of analysis, with an exposure of 6% as on October 2013. An analysis of the sectoral allocation shows that the fund’s top 5 sectors as on October 2013 are Banks (20%), Computers–Software (15%), Pharmaceuticals (8%), Telecom – Services (7%) and Refineries/Marketing (5%). Banks and Computer-Software have remained among the top 5 sectors during the entire period of analysis with an average allocation of 18% and 9% respectively.

    Performance

    The fund has been a part of our recommended funds list since 2012 and continues to be one of the best performing ELSS this year as well.  Over a period of 3 and 4 years, the fund has generated a CAGR of 3.27%% and 11.49% vis-à-vis the benchmark which has delivered 0.003% and 6.72% respectively.

    Fund Manager’s Comments

    We expect the Indian markets to move in trend with the expected recovery in macro-economic fundamental and corporate earnings growth. The economic recovery is likely to be driven by exports (manufacturing as well as services) aided by competitiveness post the depreciated Rupee and policy reforms undertaken by Government. We believe the companies with exports led earnings growth are likely to benefit as the equity markets focuses on earnings growth. In terms of policy reforms, the financial sectors companies with adequate capital and a stable asset quality will benefit by participation in the credit growth that will likely follow the GDP growth as the economic activity picks up. Also going ahead, the expected improvement in economic fundamentals is more likely to help the mid cap companies as they have been impacted badly due to the slowdown. The portfolio is positioned accordingly with a focus on exports and domestic recovery with attractively poised mid caps that are likely to benefit from the rebound in economic activity.

    Inception Date: March 31, 1993

    Fund Manager: Krishna Sanghavi

    Asset Size: INR 618 crore (AUM as on October 2013)

    Exit Load: Nil

    Benchmark: S&P BSE 100

     

    FRANKLIN INDIA TAXSHIELD

     Investment Strategy

    The investment strategy of the fund is a combination of value and growth style of investing. The fund will follow a bottom-up approach to stock picking and has the flexibility to invest across sectors and market capitalizations. The fund is biased towards the large cap space, as can be seen from the fact that the average allocation into large caps has been in the range of 81% during the period of analysis (November 2010-October 2013). On the other hand, the average allocation into mid caps and small caps have been in the range of 9% and 3% respectively. The number of stocks in the portfolio has been in the range of 44 to 58 during the last 3 years. An analysis of the portfolio shows that as on October 2013, the fund had around 49 stocks out of which 16 stocks have found a place in the portfolio during the 3 years of analysis. During the same time period there were 2 stocks i.e. Infosys and Bharti Airtel which have been among the top 5 holdings in all the 36 months. As far as the sectoral allocation is concerned, the top 5 sectors as on October 2013 are Banks (20%), Pharmaceuticals (12%), Computers – Software (11%), Telecom – Services (8%) and Refineries/Marketing (7%). A closer look at the sectoral picks shows that Banks, Computer-software and Telecom-Services have been among the top 5 sectoral picks during the 3 years of analysis with an average allocation of 18%,10% and 8% respectively.

    Performance

    The fund made an entry into our recommended funds list for the first time in 2012.Over a period of 3 years and 5 years the fund has generated a CAGR of 4.13% and 19.93% vis-à-vis -1.66% and 16.63% delivered by the benchmark.

    Inception Date: April 10, 1999

    Fund Manager: Anand Radhakrishnan & Anil Prabhudas

    Asset Size: INR 980 crore (AUM as on October 2013)

    Exit Load: Nil

    Benchmark: CNX 500

     

    ICICI PRUDENTIAL TAX PLAN

    Investment Strategy

    The investment approach followed by this fund is the value style which focuses on the fundamentals of the business, industry structure, quality of management, sensitivity to economic factors, financial strength of the company and key earnings drivers.  As far as the market capitalization of the fund is concerned, the average allocation into large caps, mid caps and small caps have been to the tune of 70%, 8% and 16% respectively during the period of analysis (November 2010 – October 2013).The  total number of stocks has been in the range of 51 to 66 during the last 3 years.A detailed examination of the portfolio shows that as on October 2013, the fund had around 61 stocks out of which only 13 stocks have been present in the portfolio for all the 3 years under analysis. As far as the sectoral allocation is concerned, Banks and Pharmaceuticals have been among the favourite picks of this fund. This is because both of these sectors have been among the top 5 picks during the entire period of analysis with Banks and Pharmaceuticals having an average allocation of 13% and 10% respectively.

    Performance

    The fund entered our recommended funds list for the first time in January 2013 and continues to be a top performing ELSS in this review as well. The fund over a period of 3 and 5 years has generated a CAGR of 2.33% and 22.85% while the benchmark has delivered a CAGR of -1.66% and 16.63% respectively.

    Fund Manager’s Comments

    We expect equities to outperform other asset classes over next 3-5 years. The lock in for 3 years will help investors to derive the benefit of long term investing. ICICI Prudential Tax Plan is a flexicap fund and exposure to mid and smallcap equities is likely to help the fund as we are bullish in this space. The large cap stocks though are expensive.Export Theme: IT and Pharmasector exposure will help capture the rupee depreciation play. Exposure to high quality metal and energy will provide the Beta in a Global rally.

    Inception Date: August 19, 1999

     Fund Manager: Chintan Haria

     Asset Size: INR 1,506 crore (AUM as on October 2013)

     Exit Load: Nil

    Benchmark: CNX 500

     

    Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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