MF Maze To Matrix

GEM GAZE

November 2018

 

Personal financial prudence is the cornerstone for the better and secure future of an individual. It aids in tackling personal and social obligations. One of the most effective methods to reduce the income tax outflow, while garnering decent returns is to invest in the Equity Linked Saving Scheme (ELSS) under Sec 80C of the IT Act.

The consistent performance of all five funds in the November 2017 GEMGAZE is reflected in all the funds holding on to their esteemed position of GEM in the November 2018 GEMGAZE.

Birla Sun Life Tax Plan Gem

Quality on a platter

Launched in February 1999, the Rs. 636 crore Birla Sun Life Tax Plan, is one of the oldest ELSS funds in the industry. Currently, large caps account for 42.49% of the portfolio. Portfolio allocations show the fund to be small and mid-cap oriented when compared to its peers, with a 57.51% allocation to small and mid-cap stocks. With 49 stocks and the top 5 holdings accounting for 33.78%, the fund looks well-diversified. The fund invests 50.23% in the top three sectors, i.e. healthcare, finance and FMCG. The fund’s investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays and offers superior growth opportunities.  After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. In spite of getting hit in the bear market situations a few years ago, it maintained a consistent growth. Since inception, this mutual fund has managed to give a very impressive return of 19.54% along with displaying a very consistent performance. In the past one year, 5 years and 10 years, the fund has earned returns of -2.21%, 19.08% and 17.41% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively.  The expense ratio is 2.38% and turnover ratio is 10%.

Franklin India Taxshield Fund Gem

Good long-term bet

Launched in April 1999, the Rs. 3,553 crore Franklin India Taxshield Fund is one of the oldest ELSS funds in the industry with a proven track record in bull and bear phases. An established fund in the ELSS category, known for its consistency of returns and an ability to contain downside, it has religiously maintained a large-cap bias amid different market phases. This ELSS fund’s strategy has been to buy quality large caps or emerging large caps at a reasonable price, even in a category crowded with multi-cap funds. Currently, large caps account for 82.69% of the portfolio. A large-cap oriented fund with a bottom-up investment strategy, this fund always stays fully-invested. The most distinctive feature of the fund’s performance history is its ability to do better than its peers when markets crash. It fell only 15.19% as compared to the category average of 23.82% in 2011. But in the next year it slightly lagged behind its peers in terms of performance. The fund’s long term returns are attractive, with a trailing five year return of 21.48% and it is ahead of its benchmark. Globally, Franklin Templeton is known for its stock selection. The Franklin India Taxshield Fund adopts the value investment philosophy. The fund waits for attractive price before investing in a share. The fund focuses on big companies which have potential to grow the business. The fund is backed by a strong research team. Anand Radhakrishan’s disciplined investment approach and a strategy that thrived well with his skill-sets has yielded desired results for this fund under his watch from April 2007 to April 2016. However, the fund went through some fundamental changes in May 2016 such as change in the manager and investment strategy. Lakshmikanth Reddy, who joined the fund in May 2016, has been at the helm of affairs of this fund since then. Although R. Janakiraman is the named comanager here, Reddy is the primary manager. The change in the fund’s strategy is significant, too. While earlier it had a more definite mandate of investing around 70% in large-cap stocks and 30% in small/mid-cap stocks, it is now managed with a flexicap approach, which enables the manager to invest without paying heed to the benchmark index, market cap, or any specific style of investing. The change in the strategy is largely to align it with Reddy’s skill-sets and to capture wider range of investment opportunities in the fund. Although the investment team has a reasonably good track record in running flexicap strategies, which is positive, it should be noted that it will also change the fund’s risk/reward profile going ahead. Further, the changes here have made the fund’s past track record less relevant. With 58 stocks and the top 5 holdings accounting for 30.62%, the fund looks well diversified. The fund invests 55.30% in the top three sectors, i.e. finance, energy, and metals. Since inception the fund has given returns of around 22.51%. In the past one year, five years and ten years the fund has earned returns of -2.14%, 16.85% and 18.01% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The fund’s returns in the last one year show a slowdown relative to the category and benchmark. The fund’s year-to-year returns do not always beat its more aggressive peers, but its performance adds up to very handsome returns over the long term. The expense ratio is 2.04% and turnover ratio is 21%.

ICICI Prudential Long-term Equity Fund Gem

Consistency is the name of the game

At Rs. 5,308 crore, ICICI Prudential Long-term Equity Fund is one of the largest ELSS funds in the industry. Currently, large caps account for 71.64% of the portfolio. With 39 stocks and the top 5 holdings accounting for 27.68%, the fund looks well diversified. The fund invests 52.08% in the top three sectors, i.e. finance, healthcare and automobile. The fund is valuation-focused and the portfolio is constructed around stocks across sectors and market-capitalisation ranges, based on cheaper valuation and reasonable growth expectations. Expensive stocks which cannot be explained by valuation tools are avoided. A fund which has outpaced its benchmark over not one but three different market cycles, it has beaten its benchmark in 13 of the last 15 years. This is a rare ELSS fund that has managed to stay one step ahead of the benchmark on a trailing one-, three-, five- and ten-year basis, while also beating the category over these periods. The fund’s investment strategy typically delivers outsized returns in the beginning stages of a bull market when sector rotation is in vogue. It trails when markets are overheated. It also works well in containing losses when bears are in control. The value style of stock-picking has suffered setbacks in the last five years but seems to be back on the saddle in the last one year or so. The fund has earned a return of 20.39% since the fund’s inception. In the past one year, five years and ten years, the fund has earned returns of 3.39%, 16.75% and 19.93% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The expense ratio is 2.25% and turnover ratio is 138%.

Invesco India Tax Plan Gem

Packs in quite a punch

With a corpus size of Rs. 621crore, Invesco India Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch. The fund invests across market capitalisation and sectors and spreads its assets over 39 stocks without being overly diversified and the top 5 holdings constitute 33.95%. 59.76% of the assets are invested in the top three sectors, finance, energy and technology. Even though the fund currently has a large cap bias with 71.04% allocation, it has not been hesitant about being heavily invested in smaller companies. In the past too, the mid-cap and small-cap allocation have been high. Its relatively small size makes an effective mid-cap strategy viable. Designed to own some of the best large-cap and mid-cap ideas of the fund house, the fund prefers quality businesses with healthy growth. But it is careful about not going overboard on valuations. It does not take tactical cash or sector calls. After remaining overweight on mid-caps until late 2015, the fund has drastically shifted gears since 2016. It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014. The fund’s recent large-cap tilt may help contain downside in the event of a market correction. The fund has delivered 14.05% returns since inception. The one-year, five year and ten year returns are 0.72%, 18.46% and 19.39% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The year-to-year returns of this fund show it to be equally good at navigating both bull and bear markets, which is a hallmark of this fund. It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014. The last one year has seen the fund outpace its benchmark, but it slightly lagged behind its category. This could be due to its higher large-cap tilt in a category that is largely multi-cap-focused. This fund is a good choice for investors who are looking for a conservative approach to tax planning. Despite its relatively short history, the fund has consistently delivered returns for the investors. A fund that has managed to beat its benchmark through markets ups and downs in seven out of the eight years since launch, the fund prefers quality businesses with healthy growth prospects. But it is careful about not going overboard on valuations. It does not take tactical cash or sector calls. Stock picking has been the key for success of this fund. The expense ratio is 2.63% and the portfolio turnover ratio is 41%.

DSPBR Tax Saver Fund Gem

Tactically navigating bull and bear runs

Launched in January 2007, DSPBR Tax Saver Fund has a fund corpus of around Rs 4329 crore. The fund is not wedded to any particular style and follows a blended growth-at-a-reasonable-price approach to select stocks. Though multi-cap by mandate, the fund has been quite large-cap oriented in the last five years. Typically, 65 to 75% of the portfolio has been in large-caps and 20 to 25% in mid-caps. The fund also takes tactical calls to capitalise on market trends and opportunities. It has a growth-oriented multi cap portfolio with 70.6% of the corpus in large cap stocks at present. There are 68 stocks in the portfolio. The top 5 holdings constitute 27.2%. 60.23% of the assets are invested in the top three sectors, finance, technology and construction. This fund has outperformed its benchmark in eight out of nine years since launch and its peers in seven of those years. The fund’s margin of outperformance relative to the category and benchmark has widened in the last one year to over 6 percentage points. On a three- and five-year basis, its annualised returns are over 7 percentage points and 3 percentage points ahead of the benchmark and category, respectively. It is creditable that this has been managed with a distinct large-cap tilt relative to the category. The track record suggests that the fund has proved better at navigating bull runs and volatile phases in the market than bear phases. In 2008 and 2011, the fund lost slightly more than the category. It has delivered sizeable outperformance in 2012 and 2016. However, as the fund has seen a change in manager in 2015 and also adopted a higher allocation to large-cap stocks, past performance may not be a great guide to the future. DSP BR Tax Saver fund has offered 13.29% returns since inception. In the last one year, five years, and ten years, the fund has earned returns of -5.45%, 17.74% and 18.12% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The expense ratio is 2.1% and the portfolio turnover ratio is 82%.