A look at 8 tax-saving funds

By Morningstar Analysts |  07-02-19

Reliance Tax Saver (ELSS) Fund

(click on the above to access the brief analyst note)

  • Star Rating: 3 stars
  • Analyst Rating: Bronze
  • Fund Manager: Ashwani Kumar, Kinjal Desai

Ashwani Kumar plies a growth-at-a-reasonable-price strategy and invests in companies with strong and sustainable business models.

He will be flexible with valuations and pay what he thinks is fair price, given the company’s growth prospects. Kumar has largely remained underweight in financials, consumption, and technology stocks because of valuations, but this stance can change based on fundamentals and growth prospects. He tends to take a two- to three-year view on stocks and focuses on factors such as return on equity and return on capital employed when evaluating companies.

There is an obvious qualitative overlay that underpins the stock-selection process. Kumar looks for factors including management quality, superior technology, favourable cost margins, and brand equity, which can give the company a sustainable competitive edge with regard to the competition. The top-down approach is important; factors such as the interest-rate scenario, barriers to entry, pricing power, policy measures, and expected consumption/spending patterns are considered when investing.

We believe the process is solid. The manager typically aims to invest in differentiated businesses and gain a first-mover advantage in terms of identifying the stock as well as ensuring that he is buying at the right price points. The process is not without risks, given the benchmark-agnostic approach and sizable sector bets.

Ashwani Kumar can tend to take sizable positions (40%-50% of the portfolio) in small- and mid-cap stocks in his quest to deliver superior returns. Kumar’s exposure to large caps has gone up slightly since 2014, with the current allocation standing at over 60%. Top 10 stocks account for roughly 50% of the total portfolio.

His penchant for diverging from benchmark weights and willingness to take active sector bets result in a significantly distinct portfolio from its peers. The fund is run as a sector-heavy, concentrated portfolio with a major portion of its assets under management invested in three to four meaningful sectors.

In rising markets, he may indulge in short-term trades and tactical plays. He tends to trade in the same set of stocks to capitalise on short-term opportunities. Kumar took cash calls in the past (the downturn of 2008, for instance) but now chooses to stay fully invested.

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