GEM GAZE
November 2010

34 ELSS Funds in all with 14 having a track record of five years and more – exhibited lower divergence between the best and worst in the category, compared with diversified funds. After a prolonged phase of underperformance, tax-savings funds are slowly catching up with their open-end diversified peers. The one-year average return of ELSS is, in fact, one percentage point higher than the diversified fund category. Besides, barring a couple of ELSS funds, almost the entire universe has outperformed the return of bellwether index Sensex.

The towering tycoons in the tax-saving space have retained their GEM status with two new GEMs, Religare Tax Plan and DSPBR Tax Plan, entering the hall of fame.

Magnum Taxgain Fund Gem
Leading light…

The true leader in its class, SBI Magnum Taxgain the grand old man of ELSS Funds, was launched as early as March 1993. It is also credited to be India’s largest ELSS scheme with over 17 lakh investors in its kitty and net assets of Rs 5996 crores. This fund is a behemoth that has ‘A’ group shares as its top holdings, and a large cap heavy portfolio. The scheme is well-diversified, where allocation to top five holdings as well as sector bets is highly rationalised. The portfolio is adorned with 68 stocks and the top 5 holdings accounting for a mere 18%. The top three sectors in which the fund has exposure are energy, financial services, and engineering. The fund has a growth-oriented large cap portfolio with 75% invested in large-cap blue-chip companies. The fund's returns since launch have been 19.89%. One-year return is 31.67% as against the category average of 38.9%. With standard deviation of 22.13 the fund ensures safety of returns. The expense ratio is 1.78% and the portfolio turnover ratio is 37%. This is a good fund for investors who choose diversification and safety over returns.

HDFC Tax Saver Fund Gem
Packing a punch…

Launched in June 1996, HDFC Taxsaver is one of the oldest open-ended tax-saving funds in the industry with an AUM of Rs 2885 crores. It is more than 13 years old and still packs a punch. This fund from one of the finest fund houses in the country is a champion in both good and bad times. The top three sectors are financial, energy and healthcare. The fund sports a large cap growth-oriented portfolio, with more than 60% of the funds in large caps. The fund is sufficiently diversified with 53 stocks and the top 5 holdings account for 24%. Smart stock picks and sector moves over the last 10 years has shown its ability to manage downside as well as riding upside. The fund is well-known for protecting investor’s money during bear markets or severe downturns as was proved during 2008. Return since launch is 34% which is an unmatched achievement in itself. HDFC Tax Saver Fund has given returns of 34.39% in a 14 year SIP and 31.92% in a 10 year SIP. The fund has consistently outperformed its category average with one-year return of 46.43% as against the category average of 38.9%. The returns since launch have been an impressive 35.61%. The expense ratio is 1.86% and the portfolio turnover ratio is 26.01%.

Fidelity Tax Advantage Fund Gem
Awe-inspiring awards…

Fidelity Tax Advantage Fund, in existence since February 2006, has been a consistent performer and ranked Crisil-CPR 1 over the last seven quarters ending December 2009. Funds ranked Crisil-CPR 1 form a part of the top 10 percentile of Crisil’s ranked universe. The fund received the ICRA 7-Star Gold Award 2010 and the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Equity Linked Savings Schemes (ELSS) category. The fund follows a bottom-up stock picking approach, focusing on a company’s core strengths, and stock selection is backed by thorough in-house research. The fund’s ideal core investment is a “go-anywhere” approach. In other words, the fund strategy is to invest in stocks without any bias towards market capitalisation, sector and trend. However, unlike the implication of a go-anywhere approach, the volatility in returns is low. To a large extent this has been possible due to a cap of 4% on single-stock exposures. The level of diversification and general aversion to volatile sectors paid off for the scheme in 2008, where it emerged as amongst the least to regress. There has hardly been any churn in the top 10 holdings of the scheme, which is encouraging. The top three sectors are financial, energy and technology. It has a high exposure to the financial services sector—about 27% at present. This is because the fund manager feels that banks still have a wide market to penetrate.70% of the assets are in large caps with a growth-oriented large cap portfolio. The portfolio is diversified with 24% in top 5 holdings. The portfolio has around 60 to 70 scrips, which could be a challenge going ahead as the fund’s size is already Rs 1,296 crore. Returns since launch in Jan 2006 is 20.55%. One-year return is 47.46% as against the category average of 38.9%. The expense ratio is 2% and the portfolio turnover ratio is 25%.

Sundaram Tax Saver Fund Gem
Fiery Flexibility…

The feather in the cap for the Rs 1582 crore scheme has been its ability to contain losses in 2008, where it outperformed its benchmark and category by losing much less. The fund invests in stocks across market-cap categories with a sizeable allocation to large-caps. Large caps constitute 66% of the portfolio which has a blend of growth and value stocks. Top five holdings constitute 22% of the portfolio with a total of 41 stocks. The fund follows both top-down and bottom-up approach for making investments. The fund focuses its investments towards companies which have macro elements like infrastructure spending, restructuring, skilled labour, etc. What distinguishes Sundaram Tax Saver from others in the category is its active churn of holdings. The average holding period in any leading stock is not more than one to three months. Diversification among giant, large, and midcap companies makes it a good fund. It is a little aggressive fund with 55% portfolio in just 3 sectors of energy, finance and construction, betting on India’s future. A very flexible fund known for its adaptability with any situation makes it suitable for every kind of investor. The fund has an impressive track record over an eleven-year period with annual returns of 23.36% since launch November 1999. Though it outperformed its category average in the three and five year periods, its one year return has been 30.24% as against the category average of 38.9%. The expense ratio is 1.96% and the portfolio turnover ratio is 237%.

Canara Robeco Tax Saver Fund Gem
Safe sailing …

One of the oldest tax saving funds with 16 years of good track record with an AUM of Rs. 220 crore, its ability to sail through the down time and steer ahead in the upturn is quite remarkable. The top three sectors are finance, energy, and services. The fund is well-diversified with only 20% assets in the top 5 holdings. 58% of the assets are in large cap stocks. The fund has diversified its portfolio into 52 stocks across various sectors with top 5 sectors (financial, energy, services, technology and healthcare) constituting 74.15% of the total portfolio. Canara Robeco Equity Tax Saver is well-diversified and has a good mix of large- and mid-cap stocks. Return since launch is 16.69% which is decent enough in such a long term. Mind boggling 43.19% return in the past one year as against the category average of 38.9% shows that some great potential is building in this fund. The fund has performed well, both in rising markets (2009) and falling markets (2008) as compared to its category average. The expense ratio is 2.38% and the portfolio turnover ratio is 51%. The fund is a safe bet, typically for conservative investors.

Religare Tax Plan In
Fresh Fire…

Religare Tax Plan is a relatively new kid on the block, having just completed three years. With a corpus of just over Rs 100 crore and fund manager Vetri Subramaniam’s good track record, the fund did well in both the falling markets of 2008 and rising markets of 2009. The top three sectors are finance, energy, and FMCG. The fund is well-diversified with 53 stocks and the top five holdings constitute 22%. Large cap stocks make up 60% of the portfolio. Return since launch in December 2006 is 18.64% and the one year return is 43.34% as against the category average of 38.9%. The expense ratio is 2.49% and the portfolio turnover ratio is 43%.

DSPBR Tax Saver In
Effective effervescence…

DSPBR Tax Saver has a fund corpus of around Rs 941 crore and follows a flexi-cap investment strategy — it invests in large- and mid- and even small-cap stocks, depending on the market fancy. The churning of stocks too is quite aggressive, with turnover ratio of around 89% which may subject the fund to volatility in returns. Banking sector, a favoured sector in the past rallies, does figure as the top sector in the recent portfolio with energy and technology occupying the second and third slots. Its top 5 sector picks constitute both growth-oriented and defensive sectors and constitute 17% of the portfolio. The fund has a growth-oriented multi cap portfolio with 53% of the corpus in large cap stocks. There are 72 stocks in the portfolio. Since inception in December 2006, DSP BR Tax Saver fund has offered 18.8% returns and 42.57% for the last one year as against the category average of 38.9% which goes to prove that this is an effective fund with a good fund manager in the backseat. The expense ratio is 2.08% and the portfolio turnover ratio is 89%.