5 tax-saving funds we like

By Morningstar Analysts |  26-03-19 | 

Kaustubh Belapurkar, director-fund research at Morningstar India, talks about five Equity Linked Savings Schemes, or ELSS, on BloombergQuint’s weekly series The Mutual Fund Show.

You can watch it the entire episode here.

Axis Long Term Equity Fund

This has been one of Morningstar’s favourites in the ELSS space.

Jinesh Gopani has been managing this fund since 2011. He is a great fund manager, with a good team, whose stock selection has worked brilliantly for him.

He builds a large-cap biased, semi-concentrated portfolio. He has a shortlist of 40-50 stocks; he is not overly diversified.

He likes growth stocks and really does not mind paying a premium as long as he can see visibility of growth.

He doesn’t like leveraged plays, neither does he like commodity stocks or public sector banks or leveraged infrastructure stocks. He stays away from regulated entities and sectors because he believes that that they go through cycles and he wants to avoid that.

Franklin Tax Shield

Anand Radhakrishnan handed over responsibility of this fund to Lakshmikanth Reddy in 2016. He has shown promise, evident in the short-time period with this AMC (he was employed at an insurance firm prior to this stint). It helps that he is backed by an excellent team.

While he looks for growth stocks, he does not pay an obnoxiously high premium and is cognizant of valuations.

Radhakrishnan was largely focused on large caps. Reddy has tweaked that a bit.  The exposure to mid caps is around 30-40%. Though the tilt is towards large caps, he will be more flexible when the time is right.

Overall, a good combination of a rock-solid team and a process which gives us comfort that over a market cycle, a fund like this should do exceedingly well.

HDFC Tax Saver

Vinay Kulkarni is an extremely experienced and competent manager, backed by an impeccable team.

Vinay is a GARP (growth at a reasonable price) manager. Since he has weathered multiple market cycles, he acknowledges the need to stay invested over long periods of time. That would explain the churn, or turnover ratio of the fund, being among the lowest in this category. He is probably as pure a buy-and-hold manager in a fund can probably be.

The 3-year lock in does give the fund manager visibility in his assets and aids this investing style.

He builds a reasonably concentrated portfolio based on his convictions, so his top 10 stocks would be in excess of 50-55% of the portfolio.

DSP Tax Saver

Rohit Singhania started off as an analyst and then began to manage the infrastructure fund— T.I.G.E.R. He gradually began to look at the more diversified offerings, the tax-saving fund being one of them.

Singhania does not have a particular style or a fixed way in which he wants to manage this. Over the past few years that he has managed this fund, his fluid investment style is evident.

He moves across market capitalizations and has a healthy large-cap exposure and a smaller mid-cap exposure, which is actually more constant in his portfolio. While those are his long-term bets, on the large-cap side, he keeps trimming and adding positions.

If he’s got a stock that he likes, he won’t be afraid to take some money off the table if valuations run up by a fair amount. At the same time, if it gets excessively cheap, he’ll go in and add. He’ll move in and out of those strategies quite flexibly, but predominantly on the large-cap side where liquidity is more abundant.

We have seen him following this style over the past few years and believe that he has the wherewithal to continue doing that.

L&T Tax Advantage

One thing we have come to appreciate of Soumendra Nath Lahiri is his knack of picking stocks before others. We have seen him and his team doing that, where they probably are among the first buyers, well before the Street acknowledged those stocks. So it's a testimony to the process they employ that actually identifies these ideas.

This fund house has a pretty stable set of analysts and managers. In this fund, Lahiri runs a multi-cap strategy. He builds a diversified portfolio with a typical cap of 6% on a holding.

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