Though the fund is not without merit, its overall appeal is limited.
Manager Ashwani Kumar differentiates Reliance Tax Saver from a typical ELSS fund on several counts. For example, most ELSS funds pay more attention to large caps and keenly focus on the risk/return trade-off. Conversely, Kumar invests substantially in small/mid-caps. Also, given the three-year lock-in period, he will take concentrated bets and invest in less-liquid securities.
While picking stocks, Kumar typically seeks companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. In effect, he attempts to balance both the growth and valuation aspects while investing. It comes as no surprise that the approach has led him to invest in the small/mid-cap space where markets tend to misprice stocks due to low coverage. When building the portfolio, Kumar typically takes sizeable underweight/overweight positions versus the S&P BSE 100 index and the category norm based on his conviction.
Clearly, the unconstrained approach provides the manager adequate flexibility to choose stocks and sectors from across the board. However, such a strategy’s success relies heavily on the portfolio manager’s ability to execute it skillfully. We note that under Kumar (Oct 2005-July 2013), the execution of the strategy has been rather middling as reflected by the 53rd percentile position on the return front. To be fair to the manager, in recent years, market conditions have been far from conducive to an aggressive, small/mid-cap focused approach; however, we don’t think that is the only reason for the middling showing. In our opinion, Kumar is far more adept operating in the large-cap space rather than small/mid-caps.
This is not a bad fund. It is helmed by an experienced manager who is supported by a strong team. The fund’s blistering showing in 2012 bears out what it is capable of accomplishing when things fall into place. But such instances have been few and far between. In a competitive category landscape, the fund doesn’t yet make a strong case for itself. Hence, we rate the fund Neutral.
Morningstar Analyst Rating™
Supporting. The combination of substantial small/mid-cap exposure and big stock/sector bets make the fund an apt supporting player in a tax-saving portfolio.
Ashwani Kumar has helmed the fund since its Sept 2005 inception.
Reliance fares well on talent retention, but it actively launched funds when it was trendy to do so.
Kumar takes big stock and sector bets, with an emphasis on qualitative factors.
Under Kumar, the fund has delivered an ordinary showing on the risk/return front.
The fund’s expense ratio is lower than the median of the India ELSS category.