GEM GAZE
November 2011

There are 48 Equity Linked Saving Schemes offered by 41 mutual fund houses. Out of this 36 are open-ended schemes and 12 are close-ended schemes. The industry wide assets for all ELSS are Rs 26,515 crore representing around 4% of the industry corpus. ELSS Funds help you save taxes as well as generate decent returns. But, how do you separate the wheat from the chaff?

GEMGAZE does it for you. The towering tycoons in the tax-saving space have retained their GEM status and have secured their position in the hall of fame by virtue of their consistency.

Magnum Taxgain Fund Gem
Losing steam?

Launched in March 1993, SBI Magnum Taxgain is one of the oldest and largest tax-saving ELSS schemes in the country with an AUM of nearly Rs 5000 crore. An interesting feature of the fund is its stock picking which is more inclined to companies that have disproportionately large market share. For a fund with a size as large as Rs 5,000 crore, SBI Magnum Taxgain's portfolio is well diversified to incorporate an average of about 60 stocks across sectors. The top 5 holdings account for 22.69% of the portfolio. While the fund has a multi-cap approach, it is clearly biased towards large-cap stocks. Nearly 70% of its equity portfolio is invested in the large caps. For the sectoral allocation, the fund has a reasonable exposure in healthcare and FMCG sectors, with an exposure of 10% and 7%, respectively. However, compared to the benchmark BSE 100, the fund is underweight on the financial sector, which was one reason for the fund's underperformance in 2010. It maintains 3% of AUM in cash. Over the past few years, it has developed itself into a defensive investment and therefore, failed to outperform the benchmark returns even when the market was rallying. Until SBI Magnum Taxgain moves out of its defensive positioning, investors can expect consistent but not outstanding returns. One-year return of the fund is –17.67% as against the category average of –18.35%. The expense ratio is 1.81% and the portfolio turnover ratio is 0.42%.

HDFC Tax Saver Fund Gem
Consistent contrarian

At Rs 3032 crore, it is the second largest ELSS fund in the industry. With the exception of 2007, the fund has done well in falling as well as rising markets. In keeping with its large size, fund manager prefers to diversify the portfolio, perhaps a bit much. It follows an investment strategy wherein it looks to invest in stocks irrespective of the market capitalization to take advantage of the then prevailing market conditions. Currently, large caps account for 60% of the portfolio. HDFC Taxsaver takes contrarian bets but its performance history speaks for itself. It is among the very few funds, which have invested in the Indian Depository Receipts (IDR) of Standard Chartered PLC (UK) and is amongst the few not holding Reliance Industries in its portfolio. Even in its sector allocation the fund is not wary of contrarian moves. The rising asset base has led to an increase in the number of stocks to 38. However, the fund has a long tail of stocks (currently 23) each with an allocation of less than 1%. They collectively account for close to 10% of the fund's portfolio. With the top 5 holdings accounting for 30%, the fund looks well diversified. Allocation to a single stock has rarely exceeds 7%. The expense ratio is 1.84% and turnover ratio is 32.19%. In the past one year, the fund has earned a return of –17.58% as against the category average of –18.35%. The fund has generated superior returns and shown resilience while protecting the downside time and again. You seldom get a mutual fund with a history of 14 years with consistent performance.

Fidelity Tax Advantage Fund Gem
Award-winning spree…

Fidelity Mutual Fund has won three awards for its Fidelity Tax Advantage Fund at the ICRA Mutual Fund Awards 2011. The Fidelity Tax Advantage Fund received the ICRA 7-Star Gold Award and the 5-Star Award in the Equity Linked Savings Schemes (ELSS) category for its 3-year performance and 1-year performance respectively as on December 31, 2010. The ICRA 7-Star is awarded to the best performing fund in the category and the ICRA 5-Star is awarded to the top 4.6% in terms of performance in the category. The one-year return of the Rs 1183 crore fund is –14.35% as against the category average of –18.35%. The fund has had a glorious run so far. What sets the fund apart is consistency in its portfolio—its top 10 scrips and sectors have been consistent throughout 2010. The fund manager goes by the balance sheet more than what the market is chasing. So it is not surprising to see that 17 of his holdings have been held in the portfolio almost since inception. Despite a large-cap bias, the portfolio is very diversified across 64 stocks. Apart from Reliance Industries, allocation to a single stock has rarely exceeded 6% of the portfolio. However, the fund takes numerous small bets. Fidelity Tax takes significant exposure to mid-cap stocks as with many funds of this genre. This has been to the tune of 20-25% of the portfolio across market cycles. This enables the fund to benefit from broader market rallies. Top 5 holdings constitute 25% of the portfolio. The expense ratio is 2% and the portfolio turnover ratio is 20%.

Sundaram Tax Saver Fund Gem
Off the mark…

Launched on November 12, 1999, Sundaram Tax Saver fund is managed by Mr Satish Ramanathan, Head of Equities at Sundaram Mutual Fund. The fund has a concentrated portfolio of 43 stocks with 69% 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 during the 2008 crisis. In last couple of years, the fund has seen its AUM increasing substantially from around Rs 480 Crore to more than Rs 1,407 crore. Top five holdings constitute 22% of the portfolio with a total of 41 stocks. Energy, financial and FMCG are the top 3 sectors. The fund follows both top-down and bottom-up approach for making investments. Its one-year return has been –20.79% as against the category average of 18.35%. The expense ratio is 1.95% and the portfolio turnover ratio is 190%.

Canara Robeco EquityTax Saver Fund Gem
Consistent outperformer…

Though around for a long time, Canara Robeco Equity Tax Saver has emerged as a strong contender only from 2007, thanks to its diversified portfolio. The fund invests in growth-oriented companies with strong fundamentals, making it a consistent offering. This Rs 302 crore fund has been pretty successful in utilising the agility that a small fund offers by spotting opportunities and capitalising on them. There are 52 stocks in the portfolio. Though allocation to a single stock has gone up to 9%, it is seen only in few large caps. Allocation to the top 5 holdings (24%) is in line with the category average. In 2010, exposure to mid caps was halved and that to large caps increased to around 70%. However, allocation to small caps has barely exceeded 15% since 2007, a drastic change from its past. The massive outperformance though has been possible as a result of 20% holding in midcap stocks. The fund also appears adept in reducing stakes in equity and switching back again. This helped it contain declines to about 47% in the 2008 market fall as against 55% equity category average. One-year return is –11.61% as against the category average of –18.35%. The expense ratio is 2.33% and portfolio turnover ratio is 57%.

Religare Tax Plan Gem
Ferocious fledgling…

With downside protection and decent returns, Religare Tax Plan made its mark in a short period of time. The fund’s ability to provide good downside protection capabilities accompanied with decent returns during markets rallies rewards investors over the long run. The fund’s focus on bottom-up stock picking leads to quality picks. The mid-cap picks are biased in favour of growth, quality of balance sheet and strength of underlying cash flow rather than sheer under valuation plays. Momentum and cyclical plays are avoided, which may result in subdued returns during market rallies. The late entry into technology also hit performance. Selective (and unusual) stock picking is the strategy of the fund. You may have to wait a while for the bets to play out. It has done well across market cycles. The fund follows a multi-cap strategy. Although benchmarked against BSE 100, the base universe is the BSE 200, to which stocks in the CNX Midcap index are added. Moreover, a few handpicked companies from the BSE Small Cap and BSE PSU indices are considered. This universe is reviewed every quarter.Under normal circumstances, allocation to a single stock is restricted to 6%. The top three sectors are finance, energy, and services. The fund is well-diversified with 50 stocks and the top five holdings constitute 26%. Large cap stocks make up 59% of the portfolio. The one-year return is –13.43% as against the category average of –18.43%. The expense ratio is 2.49% and the portfolio turnover ratio is 62%. With a corpus size of Rs 110 crore, Religare Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch.

DSPBR Tax Saver Gem
Temporary lull?

The fund uses a multi-cap strategy like many of it peers and also deploys cash efficiently. Banking sector, a favored sector in the past rallies, does figure as the top sector even in the recent portfolio. Its top 5 sector picks constitute both growth-oriented and defensive sectors. The churning of stocks too is quite aggressive, which may subject the fund to volatility in returns. DSPBR Tax Saver has a fund corpus of around Rs 941. The fund has a growth-oriented multi cap portfolio with 54% of the corpus in large cap stocks. There are 81 stocks in the portfolio. DSP BR Tax Saver fund has offered –21.6% returns for the last one year as against the category average of –18.35%. The expense ratio is 2.11% and the portfolio turnover ratio is 70%.