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Why Canara Robeco Equity Tax Saver is a good investment

Yoganand D BL Research Bureau | Updated on July 17, 2021

The fund shows strong winning consistency over the benchmark

Investors looking for tax saving for financial year 2021-22 can consider investing in equity-linked saving schemes (ELSS) with a three-year lock-in period, instead of rushing at the eleventh hour.

These funds help investors reduce up to ₹1.5 lakh from taxable income under Section 80C of the Income Tax Act, and the default feature of equity lock-in prevents investors from making hasty redemptions.

A worthy candidate in this category is Canara Robeco Equity Tax Saver, which has delivered good returns across market cycles and has been among the top performers.

Do note, the tax savings accrue only if you opt for the old income tax regime. Investors should adopt a Systematic Investment Plan (SIP) strategy to navigate volatile market movements.

Canara Robeco Equity Tax Saver is benchmarked against S&P BSE 100 TRI and over one-, three- and five-year time periods has done better than the index.

It has delivered 64 per cent, 20 per cent and 18 per cent annualized returns against the benchmark returns of 52 per cent, 7 per cent and 10 per cent respectively over one-, three- and five-year periods..

Moreover, in the ELSS category funds, the scheme is among the top quartile performers across these timeframes.

Further, in the past five-year period, the fund has overtaken some key peer funds such as DSP Tax Saver and Axis Long Term Equity.

The fund also displays a strong winning consistency with its three-, five- and ten-year daily rolling returns better than the benchmark.

The scheme has not only managed downsides well but has also captured upsides.

According to ACE MF data (monthly returns for 3 years ended July 16, 2021), Canara Robeco Equity Tax Saver has an upside capture ratio of 104 versus category average of 93.9, meaning it gains more than others when the market moves up.

The fund also has a downside capture ratio of 87.4 versus category average of 97.1, meaning it falls less than others when markets slip.

Portfolio and strategy

Canara Robeco Equity Tax Saver provides a well-diversified portfolio of fundamentally strong companies with growth style of investing. The fund primarily invests in large-cap stocks and has upped that allocation to 77 per cent over the past six months from 70.8 per cent. This will provide a buffer against any expected market fall.

On the other hand, it has reduced the mid-cap allocation from 22.8 per cent to 17.9 per cent and small-cap exposure from 3.8 per cent to 1.7 per cent in past six months at a time when their valuations are excessive. Importantly, the fund has a flexible investment strategy with no sector or theme bias, which allows it to run an unconstrained portfolio.

Canara Robeco Equity Tax Saver has been consistently outperforming the category average returns annually since 2018. In the highly volatile 2020, the fund gained 27.3 per cent against the category average return of 16 per cent.

After increasing its allocation to banking stocks in February 2021, the fund has maintained exposure at around 23 per centwhile marginally trimming the allocation in software and consumer durable stocks.

Other key sectoral allocations are finance, pharma and construction. Private banks, such as HDFC Bank, ICICI Bank and Axis Bank are among the top 10 stocks and have delivered good returns over the last one year.

The fund holds 55 stocks in the portfolio and the top 10 account for 46 per cent weight.

Barring a few top stock holdings, the allocation towards other individual stocks is less than 3 per cent of the portfolio and that lowers individual concentration risk.

As on June 30, the fund is overweight in financial, technology, automobile and construction sectors and underweight in healthcare, FMCG, energy and metal compared with the overall ELSS category.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

Published on July 17, 2021

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