4 ELSS funds to consider for tax saving

By Kaustubh Belapurkar |  25-02-21 | 
 
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Kaustubh Belapurkar, Director of Manager Research, Morningstar Investment Adviser India.

Tax-saving mutual funds, known as Equity Linked Savings Schemes (ELSS) are a long-term investing asset class. While the lock-in is only for three years, we recommend coming in with at least a 5-year investment horizon. With the market at such a high, it’s very important to have the right investment horizon in mind.

Axis Long Term Equity Fund

This fund is managed by Jinesh Gopani. It is the largest fund in the category. Axis AMC’s philosophy is investing in growth stocks. They don’t worry too much about valuations because they believe growth rates of the stock justify the high valuations and they’re happy investing in it for the long term.

They are practicing it since its inception. This fund has been doing well over the last two to three years. From 2016 to 2017, the fund went through a trough. During this period, the market favoured cyclicals such as metal stocks and some of those which Jinesh’s philosophy completely avoids. So, it didn’t work but Jinesh stuck to his guns and he proved his point when the market cycle turned in favour of his style. It has been a polarised market towards high quality, high growth companies for the last couple of years. The philosophy of sticking to his conviction has paid off. But just a word of caution. The fund has received a lot of inflows over the recent past due to its good performance as compared to the peer group. We want to advise investors that market cycles can turn, the fund could again potentially go through a trough on a relative basis because the market cycle turns towards value or the cyclical names. That said, the fund benefits from the fund manager’s style and conviction.

Mirae Tax Saver Fund

Neelesh Surana manages this fund. He has managed funds with a fairly long track record with a lot of success. He’s predominately a growth manager but he also looks in building in a margin of safety into his purchase price because he’s looking at the intrinsic value of the stock. He trims his exposure when the valuations become a little too excessive or when they have run ahead and buy them back when they become cheaper from that relative context. He is a growth at a reasonable price manager. He also has a value-tilt, not a large component though. The classic case was when they moved into healthcare more than a year back when the valuations were very compelling, there were some good companies to buy and that paid rich dividends 2020.

DSP Tax Saver Fund

During DSP’s partnership with BlackRock, they put in place a lot of investment processes and fine-tuned them based on risk management, within the overall investing framework. Rohit Singhania manages this fund. He grew as an analyst, took on fund management responsibility and has come up the curve. They also have Vineet Sambre who is more of a mid-and small-cap specialist and the rest of the team has really stayed stable over time. A lot of people with vintage from the DSP BlackRock days are still within the system. I think that gives them an immense amount of comfort that the processes are pretty rock solid. You will see that across their strategies. I think that’s very important to acknowledge. Rohit Singhania is more fluid in his investing thought process. He has got a large-cap bias. He trades in and out, which is evident by a little more churn than his peers. The mid-cap portion of his portfolio is buy and hold and remains steady and that’s where DSP is among the better teams in identifying the mid- and small-cap stocks, which is a great plus. On the large-cap side, he would do a little bit of complex cyclical plays. He would trade in and out when valuations become excessive on certain counters and overall. He would not worry too much about what the benchmark holdings are or the sector weightage is. He can move fluidly between that and that’s his style, and he’s applied that well over a period of time.

Franklin India Taxshield Fund  

Lakshmikanth Reddy took over the reins four-and-a-half years back. He runs a counter-cyclical strategy as he has got a much greater core and value blend within his portfolio. If you look at the most recent track record, you won’t want to pick the fund because this fund has not done well.  But there’s a reason for it. The style has been out of favour. In fact, if you look at his most recent position he is overweight sectors like utilities, consumer cyclicals which are kind of now making a comeback. So, he’s taking that approach. It’s not necessarily paid off in recent times because the market cycle wasn’t stable, but that’s the beauty, right? You should try to pick managers with different styles. Now, even within his banking exposure when you look at it, he’s got some of the more corporate banking games like Axis Bank being his top holding. It is a slightly differentiated portfolio as compared to the others. The other thing Lakshmikanth does really well is he’s agnostic and he does take some bold sector calls in utilities. So there’s a slightly away from a benchmark strategy but I think it’s an interesting play to someone who has got a large component in the growth stock or the growth spectrum of his portfolio. Investors can definitely look at adding something like this fund in the portfolio.

Performance of the above-mentioned funds         The above has been extracted from an interview with Bloomberg Quint.
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