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Top 5 Tax Saver Funds
December 22, 2010

In this article, we highlight top 5 recommended ELSS based on our in-house research methodology


Author : Nikhil Kothari



Untitled Document

There are all together 48 Equity Linked Saving Schemes (ELSS) offered by 41 Mutual Fund houses. Out of which 36 are open-ended schemes and 12 are close-ended schemes. The industry wide assets for all ELSS are INR 26,515 Crore (as at 30 November 2010) representing around 4% of industry corpus.

Here we highlight our top 5 recommend ELSS!

Fidelity Tax Advantage Fund

Fidelity Tax Advantage Fund was launched on 05 January 2006 and is managed by Mr Sandeep Kothari.

Investment Strategy:  Though the fund has leeway to invest across market capitalisation, however it has been mostly managed as a large-cap biased portfolio with around 70% of its portfolio consistently in large-cap stocks. The fund manager follows a bottom-up stock picking approach. In terms of sector exposure, at the end of October 2010, the fund has highest concentration on banks with around 18% in banking stocks, followed by pharmaceuticals sector constituting around 10% of the portfolio. The fund is positive on this sector for quite some time.  The fund does not take cash calls and is almost completely invested (above 95%) across all market scenarios. The fund is well diversified and has around 65 to 70 stocks in the portfolio compared to couple of years back when the portfolio used to have more than 80 stocks.

Size: The Assets under Management (AUM) of the scheme is around INR 1,300 crore (as at 31 October 2010) and is the sixth largest fund in terms of AUM.  

Performance: In terms of performance, the fund has outperformed its benchmark as well as category average across all time periods - 6 month, 1 year or 3 year. Since inception, the fund has given return of CAGR 19.14% as compared to 14.46% by the BSE 200 (as at 30 November 2010).

HDFC Tax Saver Fund

HDFC Tax Saver is one of the oldest ELSS and was launched on 18 December 1995.  Mr Vinay Kulkarni is managing the fund since 21 November 2006.

Investment Strategy:  The fund manager actively moves across market-cap based on his outlook on the market which is visible from his portfolio positioning. In March 2008 when the market was in bear phase, the fund had around 78% in large cap stocks and when markets started recovering in June 2009, the fund manager reduced the exposure to large-cap to 71% and later, to around 60% in September 2009. Currently, the fund is well diversified with around 50 stocks in the portfolio which has increased from 20 stocks in 2003. The fund normally does not take huge cash calls however, the fund did move into debt and cash securities to the extent of 8% to 10% from June 2009 to September 2009 after the huge rally posted by equity markets in May 2009 on the back of UPA government getting a majority in the general election.

Size: The fund is second largest in terms of AUM and has around INR 2,948 crore corpus (as at 31 October 2010).

Expense Ratio: The scheme has one of the lowest expenses in the category.

Performance: Over a 10 year period, HDFC Tax Saver is the best performing scheme and has outperformed the benchmark and category average by huge margin. The fund has given CAGR return of 30.20% as compared to 17.89% delivered by benchmark S&P CNX 500 and 19.14% by the category average (as at 30 November 2010) in last 10 years.

Religare Tax Plan

Religare Tax Plan is the newest scheme from the list that we have selected and is about to complete four years on 29 December 2010.

Investment Strategy:  The fund is diversified and has invested around 30% to 40% of the portfolio in midcap stocks. The fund manager, Mr Vetri Subramaniam actively churn between sectors and in last six months, the fund manager has increased exposure to Banking from around 9% in May 2010 to above 15% as on November 2010 and from 2% of the exposure in Engineering in March 2010 to around 6% at present.

Size:  Though the corpus of the scheme (INR 109.67 Crore as at 31 October 2010) is small, the fund has shown remarkable performance and finds a place in our top 5 recommend scheme.

Performance: The fund has performed better than benchmark in both bull and bear market. In 2007, when the market was on upswing, the fund has given a return of 64.40% as compared to 59.74% by the benchmark, BSE 100. In 2008, when market was in bear phase, benchmark has given negative return of 55.28% whereas fund generated a less negative return of 49.51%. In 2009, the fund performed in line with benchmark with both giving return of 83.40% and 85.03% respectively. However year to date (YTD), the fund has outperformed the benchmark by a huge margin and has given a return of 20.61% as compared to 11.38% by the benchmark (as at 30 November 2010).

Reliance Tax Saver Fund

The scheme was launched on 25 July 2005. The fund is managed by Mr Ashwani Kumar who has over 10 years of experience in the Industry.

Investment Strategy:  The fund is managed in a concentrated way with 30 to 40 stocks in the portfolio with good mix of both large-cap and mid-cap names. The fund manager used to take huge cash calls based on the market outlook but most of the time, the call did not go in fund manager’s favour. Towards end of September 2007, the fund had around 17% in cash and cash equivalent and it hurt the performance of the fund. In September and October 2007 when the benchmark gave return of 14.12% and 15.87% respectively, fund gave a return of 11.57% and 5.27 % respectively. Similarly in 2009, during month of April, May, and June when the fund had on an average 21% in cash and cash equivalent, the market gave a positive return of 68.72% in three months, whereas fund gave return of only 55.58%.  However in 2010, the fund hardly took cash calls and the investment in cash and cash equivalent was only 5% on an average. This has helped the fund to outperform the benchmark by huge margin. The benchmark, BSE 100 has given return of 11.38% YTD, whereas the fund has given 20.86% (as at 30 November 2010). The fund manager doesn’t significantly follow sector churning as the portfolio’s exposure to various sectors has been consistent in last one year.

Size:  It is the third largest scheme in terms of AUM.

Expense Ratio: The expense ratio of the fund has been among the lowest in the category.

Performance: The fund has outperformed the benchmark in last 6 month, 1 year and 3 years. Since inception, the fund has delivered a CAGR return of 16.40% as compared to 17.21% delivered by benchmark, BSE 100.

 
Sundaram Tax Saver Fund

Launched on 12 November 1999, Sundaram Tax Saver fund is a large-cap biased portfolio. The fund is managed by Mr Satish Ramanathan, Head of Equities at Sundaram Mutual Fund.

Investment Strategy and Performance:  The fund has a concentrated portfolio of 35 to 45 stocks with 65% to 75% of the portfolio invested in large-cap stocks. The fund is very actively managed and is also known for taking cash calls when the fund manager is not bullish on the market.

The huge cash call which the fund took in 2008 really helped the fund; it was on an average more than 16% in cash. The fund went up to 36% in cash in November 2008 which helped the fund outperform the benchmark. The benchmark, BSE 200 has given a negative return of 56.46% whereas the fund gave a negative return of only 47.57%. However in the market recovery next year, the fund underperformed the benchmark by huge margin as it returned only 72.02% compared to the benchmark which delivered 88.50%.  

Despite this, the performance of Sundaram Tax Saver has been good over long periods and is the second best performing fund in last 5 years (as at 30 November 2010) delivering CAGR of more than 20%.

Size: In last 2 years, the fund has seen its AUM increasing substantially from around INR 480 Crore to more than INR 1,600 Crore (as at 30 October 2010).

 Table 1: Comparison of performance of our recommend ELSS scheme Performance

Scheme Name

6 Months

YTD

1 Year

2 Years

3 Years

5 Years

Since Inception

Fidelity Tax Advantage (G) 19.07 26.11 29.88 57.69 8.35   19.14
HDFC Tax Saver(G) 19.18 24.89 29.60 64.25 7.74 18.73 24.80
Reliance Tax Saver (ELSS)(G) 17.29 20.87 29.56 53.11 5.25 16.34 16.40
Religare Tax Plan(G) 17.01 20.62 27.13 55.90 8.17   16.77
Sundaram Tax Saver(G) 18.05 11.74 15.58 44.56 3.65 20.20 25.65
Return less than 1 year are absolute and greater than 1 year are annualised .                                                                             Source: ACE MF, iFAST Compilations. Data as on 30 November

 


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 offer document/scheme additional information/scheme information document. 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 in the website.

 


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