Equity Linked Savings Schemes, or ELSS, are diversified equity funds that offer a tax break under Section 80C.
Here's a look at our analysts' take on a few select ones.
- Fund: Axis Long Term Equity
- Fund Manager: Jinesh Gopani
- Star Rating: 5 stars
- Analyst Rating: Bronze (Regular), Silver (Direct)
- Analyst: Kavitha Krishnan
- Date of Analysis: December 2019
- Latest performance
- Portfolio
Jinesh Gopani has been able to execute the strategy with consistency so far. We think he stands out as an efficient stock-picker who invests based on his high-conviction ideas.
Gopani looks for companies that have the capability to grow over a three- to five-year period and places a lot of emphasis on finding quality names at reasonable valuations. The manager typically invests about 50%-70% of the portfolio in large-cap stocks.
From a valuation perspective, he can tend to invest in stocks that are slightly expensive in relative terms as long as they meet his internal quality and growth criteria.
Despite being the largest fund in the category, the fund’s long-term performance has remained positive.
The fund has remained true to its mandate and will continue to be managed in the same manner going forward. Despite the underperformance in 2016 and 2017, the manager continued to remain focused towards investing in high quality stocks and this has paid off in the recent times.
Our conviction is based on Gopani’s consistent and efficient execution of the strategy, and the positive long-term performance.
- Fund: HDFC Tax Saver
- Fund Manager: Vinay Kulkarni
- Star Rating: 2 stars
- Analyst Rating: Bronze
- Analyst: Kavitha Krishnan
- Date of Analysis: December 2019
- Latest performance
- Portfolio
HDFC TaxSaver is managed by Vinay Kulkarni, an experienced and competent manager who has built a strong track record over the years. Our conviction in the manager, the process, and his execution, leads us to hold a favorable view.
Kulkarni predominantly favours large-cap stocks, investing roughly 70%-80% in this segment and the remaining in small/mid-caps. He places a lot of emphasis on understanding the business and has an inherent quality bias while investing. His valuation-conscious approach can lead him into investing in stocks/sectors that are undervalued but out of favor.
We think Kulkarni's focus on the long-term strength of a business is a positive and complements the broader style of investing followed by the investment team at the AMC. While Kulkarni considers the opportunity cost of holding a stock over the long term, he doesn’t tend to exit solely based on valuations.
Overall, we are fairly impressed with his investment style and solid execution of the investment process. We also note that the process is well defined and repeatable.
Kulkarni's sizeable high-conviction bets can result in some short-term underperformance, as in the past two years. Nevertheless, we believe that over longer time frames when markets experience a full cycle, the manager's investment style and expertise will hold the fund in good stead.
- Fund: SBI Magnum Taxgain
- Fund Manager: Dinesh Balachandran
- Star Rating: 2 stars
- Analyst Rating: Neutral
- Analyst: Himanshu Srivastava
- Date of Analysis: November 2019
- Latest Performance
- Portfolio
Dinesh Balachandran took over the reins of this fund in September 2016. He comes from a fixed-income background with extensive research experience. This is his first time running a diversified equity fund.
The fund is a benchmark-aware predominantly large-cap offering.
Balachandran puts extensive focus on valuations. He is flexible with his stock picks. He won’t shy away from investing in a company that is not best-in-class, but has good risk/reward prospects.
Given Balachandran’s value focus, the fund can be expected to struggle in momentum driven and growth-oriented markets.
Historically, we have not been too impressed with this offering. For his three years at the helm here, its performance is nothing to write home about. While this is partially because of his investment style being out of favour, the execution has also been found wanting on few occasions.
The fund has a long way to go before it could gain our conviction.
- Fund: Nippon India Tax Saver
- Fund Manager: Ashwani Kumar
- Star Rating: 2 stars
- Analyst Rating: Bronze
- Analyst: Kavitha Krishnan
- Date of Analysis: October 2019
- Latest Performance
- Portfolio
Manager Ashwani Kumar invests across market-cap segments based on valuations. He runs a concentrated portfolio and can invest in slightly less-liquid stocks, given the 3-year lock-in period.
Kumar seeks to invest in companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. In effect, he attempts to balance both growth and valuation aspects while investing. This approach can lead him to invest in the small/mid-cap space, where markets tend to misprice stocks owing to low coverage. It came as no surprise that he invested a substantial portion of the fund in small/mid-caps during the rally in 2016.
This unconstrained approach provides the manager with adequate flexibility to choose stocks and sectors from across the board.
Such a strategy’s success relies heavily on the portfolio manager’s ability to execute it skillfully. Given the fund’s concentrated approach, the performance of the underlying sectors could affect the fund’s returns. The current portfolio reflects a 60% allocation to large-cap stocks, and we are of the view that Kumar is far more adept at operating in the large-cap space.
The construction of the fund will lead to its performance remaining more volatile compared with peers.
- Fund: Franklin India Taxshield
- Fund Manager: Lakshmikanth Reddy
- Star Rating: 4 stars
- Analyst Rating: Bronze
- Analyst: Himanshu Srivastava
- Date of Analysis: August 2019
- Latest Performance
- Portfolio
Lakshmikanth Reddy is the primary manager and R. Janakiraman is the comanager. The fund is managed with a flexicap approach which enables the manager to invest without paying heed to the benchmark index, market cap, or any specific style of investing.
The fund has not been able to deliver a great performance under Reddy. This could be attributed to the team’s investment style being out of favour for some time now. In 2017, the manager’s valuation-conscious approach led him to maintain higher large-cap exposure (around 77% of assets) compared with the category average of 63%, at a time when mid/small-cap stocks had a dream run.
Similarly, the manager’s strategy of sticking to his underperforming investments, if he is convinced about their long-term prospects, backfired.
Having said that, having been at the helm for over three years now, Reddy has displayed the potential to successfully execute this strategy over the long term. We are fairly impressed with his disciplined investment approach and believe that it should hold the fund in good stead. Having said that, there is room for improvement.
- Fund: Sundaram Diversified Equity
- Fund Manager: S. Krishnakumar
- Star Rating: 2 stars
- Analyst Rating: Neutral
- Analyst: Kavitha Krishnan
- Date of Analysis: August 2019
- Latest Performance
- Portfolio
Krishnakumar is an experienced manager with a strong research background. He is a proficient high-conviction stock-picker, especially within the mid-cap space. He is a skilled manager, and his long tenure and experience at Sundaram are a positive.
The fund’s investment strategy has remained consistent and allows the manager flexibility to move across market capitalisations. The fund’s exposure to mid-cap stocks in the portfolio typically ranges between 35% and 50% and is based on the availability of investment avenues.
Though the fund is fairly diversified, the manager can deviate significantly from the benchmark, resulting in a portfolio that is markedly different from its index. We think that Krishnakumar’s capabilities as an efficient stock-picker are reflected in this strategy.
We have a positive view on Krishnakumar’s capabilities and think that he is an above-average manager. Having said that, we would like to see the execution translate into a better long-term performance on the fund.
- Fund: DSP Tax Saver
- Fund Manager: Rohit Singhania
- Star Rating: 4 stars
- Analyst Rating: Neutral
- Analyst: Himanshu Srivastava
- Date of Analysis: March 2019
- Latest Performance
- Portfolio
Singhania adopts a fluid investment approach without any bias or restrictions in terms of stocks or sectors. In the manager’s own words, this fund doesn’t have a defined investment approach, which in turn provides him the liberty to capitalise on any investment opportunity that he sees in the market, provided it makes a grade on his selection parameters.
Consequently, the fund’s portfolio turnover tends to be on the higher side.
He prefers constructing a diversified portfolio but doesn’t shy away from taking significant exposure in his high-conviction picks. For instance, the exposure to top-10 stocks in the portfolio has increased from 33% in December 2017 to 42% in February 2019. Despite that, the portfolio is usually more diversified than a typical category peer.
While an unconstrained process can be very rewarding, it is risky, too. A wrong bet can lead to significant underperformance. Also, the absence of a rigidly defined method means investments are made on a somewhat intuitive basis. Hence, it must be noted that the success of the investment process largely depends on Singhania’s execution skills.
