GEMGAZE

November 2016 

The combination of equity and tax-saving makes ELSS an ideal gateway to equity. There are many kinds of mutual funds and clearly, not all are suitable for every investor. However, ELSS funds are probably an exception. Everyone who is eligible for ELSS tax savings should invest in them. The benefits of ELSS go far beyond just the tax you save, or even the gains you make from the fund itself. ELSS funds' role as a gateway to equity investments makes them invaluable for everyone.

The consistent performance of two funds in the November 2015 GEMGAZE is reflected in those funds holding on to their esteemed position of GEM in the November 2016 GEMGAZE. Magnum Taxgain Fund, HDFC Tax Saver Fund, and Canara Robeco Equity Tax Saver Fund have been shown the exit door by virtue of their dismal performance while Birla Sun Life Tax Plan, Franklin India Taxshield Fund, and ICICI Prudential Long-term Equity Fund have been accorded a red carpet welcome.

Birla Sun Life Tax Plan Gem

Launched in 1999, the Rs. 422 crore Birla Sun Life Tax Plan is one of the oldest ELSS funds in the industry. Currently, large caps account for 47% of the portfolio. Portfolio allocations show the fund to be more small-cap oriented than its peers, with a 15-22% allocation to small cap stocks. With 51 stocks and the top 5 holdings accounting for 25.77%, the fund looks well diversified. The fund invests 52.23% in the top three sectors, i.e. finance, automobile, and services. 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 the past one year, the fund has earned a return of 10.42% as against the category average of 11.57%. Since inception, it has given an annual return of 20%. The expense ratio is 3.01% and turnover ratio is 2%.

Franklin India Taxshield Fund Gem

Launched in April 1999, the 2442 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. 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 81% of the portfolio. Outpacing the benchmark in 12 of the last 15 years, this fund has proved more adept at containing losses in bear markets than in really acing its peers in runaway bull phases. The last two years, however, have seen the fund widen its outperformance vis-a-vis the benchmark and the category. The fund's bottom-up picks in automobiles and ancillaries, ports and pharma may explain part of this, as also its underweight positions in PSU banks, metals, and energy. The fund also avoids momentum stocks and sticks to bottom-up fundamentals-based investing. Though this fund is from a growth-style fund house, it tends to be quite valuation conscious. The fund does not take cash calls and remains fully invested through cycles. With 55 stocks and the top 5 holdings accounting for 26.28%, the fund looks well diversified. The fund invests 52.65% in the top three sectors, i.e. finance, automobile, and technology. Since inception the fund has given returns of around 25%. In the past one year, the fund has earned a return of 10.14% as against the category average of 11.57%. The expense ratio is 2.4% and turnover ratio is 19%. 

ICICI Prudential Long-term Equity Fund Gem

At Rs. 3745 crore, ICICI Prudential Long-term Equity Fund is one of the largest ELSS funds in the industry. Currently, large caps account for 54% of the portfolio. With 37 stocks and the top 5 holdings accounting for 28.23%, the fund looks well diversified. The fund invests 53.06% in the top three sectors, i.e. finance, healthcare, and technology. 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. In the past one year, the fund has earned a return of 10.4% as against the category average of 11.57%. The expense ratio is 2.3% and turnover ratio is 138%. 

Religare Invesco Tax Plan Gem

With a corpus size of Rs. 340 crore, Religare 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 47 stocks without being overly diversified and the top 5 holdings constitute 29.17%. The top three sectors are finance, automobile, and technology. Even though the fund currently has a large cap bias with 69% 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. The one-year return is 8.59% as against the category average of 11.57%. 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 2.49% and the portfolio turnover ratio is 31%.

DSPBR Tax Saver Fund Gem

Launched in 2007, DSPBR Tax Saver Fund has a fund corpus of around Rs 1496 crore. It has a growth-oriented multi cap portfolio with 69% of the corpus in large cap stocks. There are 65 stocks in the portfolio. The top 5 holdings constitute 22.32%. The top three sectors are finance, automobile, and healthcare. The fund follows an investment strategy that remains rooted to a bottom-up approach with a predominant focus on growth-oriented stocks. The manager uses sector-based model portfolios created by analysts as his initial reference point. He combines this with absolute and relative valuation measures to pick stocks. He scouts for stocks that have high/rising return on equity along with good scalability prospects. The manager shows a value bias by investing a small portion in companies that trade at close to half their book value. Top-down research is taken into consideration when taking sector bets, with the manager typically looking for sectors that demonstrate strong pricing power. The manager pays heed to portfolio construction, with strong emphasis on liquidity and risk mitigation. DSP BR Tax Saver fund has offered 18.64% returns for the last one year as against the category average of 11.57%. The expense ratio is 2.61% and the portfolio turnover ratio is 136%.