Equity Linked Savings Scheme offer tax deduction under section 80 C of the Income Tax Act 1961. As compared to other traditional tax saving instruments in this space, ELSS offers the potential for earning superior risk-adjusted returns and comes with the shortest lock-in period of three years. Over a one-year period, the ELSS category has delivered 15.62% return, 13.27% over a five year period and 11.90% over a ten year period.
Here are three ELSS funds reviewed by our analysts. The star rating, analyst rating and returns mentioned below are for direct share class.
Axis Long Term Equity
-
Fund Manager: Jinesh Gopani
-
Star Rating: 5 stars
-
Analyst Rating: Silver
-
Analyst: Kavitha Krishnan
-
Date of Analysis: December 2019
-
Return: 18.59% (1 year), 16.52% CAGR (5 year), 19.89% CAGR (since inception)
-
Inception Date: December 2009
-
Investment Style: Large Growth
-
Number of Stocks: 32
-
Assets in top ten holdings: 65%
-
Fund Overview
Fund manager Jinesh Gopani looks for companies that have the capability to grow over a three to five-year period and seeks to find quality names at reasonable valuations. However, he can tend to invest in stocks that are slightly expensive in relative terms (reflected in the fund’s higher price/earnings ratio) as long as they meet his quality and growth criteria. The portfolio holds about 50%-70% large-cap stocks, while small and mid-caps constitute the remaining portion.
The focus is on being able to identify companies with sustainable earnings growth potential, credible management, and good corporate governance practices. Stock-picking is based on fundamental bottom-up research with emphasis
on top-down risk parameters, liquidity, and internal volatility targets. From a financial standpoint, the team looks for companies with low capital gearing and strong balance sheets. It undertakes a 360-degree approach while evaluating a company by ensuring thorough channel checks are in place and spends time speaking to dealers, distributors, clients, and so on.
The fund house has a research universe of about 350 stocks which are bucketed into three segments based on the frequency and depth of coverage. It seeks to spend more time identifying fresh ideas and researching companies that are not as widely researched by the broader market. The research team also runs a live model portfolio, essentially a combination of its best ideas.
DSP Tax Saver
-
Fund Manager: Rohit Singhania
-
Star Rating: 4 stars
-
Analyst Rating: Bronze
-
Analyst: Himanshu Srivastava
-
Date of Analysis: June 2020
-
Return: 16.19% (1 year), 16.30% CAGR (5 year), 16.39% CAGR (since inception)
-
Inception Date: January 2007
-
Investment Style: Large Blend (mix of value and growth)
-
Number of Stocks: 58
-
Assets in top ten holdings: 47%
-
Fund Overview
Analysts construct sector-based model portfolios comprising the best ideas from stocks in their investment universe. Stocks are evaluated using quantitative ratios such as Return on Capital Employed (ROCE), Return on Equity (ROE), Price to Equity (P/E), Price to Book Value (P/BV) and Enterprise Value to Earnings Before Interest Tax, Depreciation and Amortisation (EV/EBITDA), among others, with the analysis and research inputs of key sell side analysts incorporated into the model.
Fund manager Rohit uses sector-based model portfolios created by analysts as his initial reference point, and he plies an overlay by using the change in ROCE/ROE compared with a company’s intrinsic growth and P/BV as an appropriate measure to evaluate stocks.
Stress is laid on understanding a company’s business model, expected cash flow, key business drivers, and the scalability prospects of the company and the sector in which it operates. The manager prefers businesses with rising/high ROE and cash flows. Additionally, he uses relative valuation measures to invest in stocks that are temporarily mispriced within a sector using relevant quant ratios and also invests a small portion of the portfolio in value stocks trading below half their book values. Although the manager is rooted to a bottom-up style, top-down factors are not entirely ignored as the macroeconomic scenario and government policies, combined with industry/sector analysis, are used to identify and overweight sectors that demonstrate strong pricing power.
Franklin India Tax Shield
-
Fund Manager: Lakshmikanth Reddy
-
Star Rating: 2 stars
-
Analyst Rating: Bronze
-
Analyst: Himanshu Srivastava
-
Date of Analysis: June 2020
-
Return: 12.78% (1 year), 11.94% CAGR (3 year), 14.18% (since inception)
-
Inception Date: April 1999
-
Investment Style: Large Blend (mix of growth and value)
-
Number of stocks: 55
-
Assets in top ten holdings: 54%
-
Fund Overview
The fund follows a research-driven approach with a fluid investment style.
Managers and analysts here jointly draw up the investment universe where they look for growth companies that fit their qualitative requirements. Analysts gauge companies using DCF models and parameters such as ROE, P/BV and P/E. Sector-based model portfolios created by analysts are compiled by the research head to create market-cap-based model portfolios that serve as guides to the portfolio managers.
Fund manager Lakshmikanth Reddy uses these model portfolios as his initial reference point. He invests in firms he believes have good earnings growth potential. He will not follow any pre-specified style (growth or value). He would not shy away from investing in beaten-down growth stories and out-of-favour companies that face near-term headwinds but are fundamentally sound. At the same time, he wouldn’t mind paying a premium for a company offering robust growth prospects.
Investments are made with a long-term perspective. This approach hasn’t yielded the desired results thus far. While the strategy has been out of favour for some time now, there is also a scope for improvement on the execution front, which has been found wanting with respect to making quick and timely adjustments in the portfolio. Such executional issues can have a bearing on the fund’s prospects.
© 2020 Morningstar. All rights reserved. The Morningstar name is a registered trademark of Morningstar, Inc. in India and other jurisdictions. Research on securities, referred to for the purpose of this document as “Investment Research”, is issued by Morningstar Investment Adviser India Private Limited, which is registered with SEBI as an Investment Adviser (Registration number INA000001357), providing investment advice and research, and as a Portfolio Manager (Registration number INP000006156). For the complete disclaimers,
click here
.
