Mutual Funds

Matching multi-caps

M. V. S. Santosh Kumar | Updated on December 08, 2012

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Tax-saving equity linked savings schemes continued to match the returns of diversified multi-cap funds in the last one year. On an average, ELSS (equity linked savings scheme) schemes delivered 20.1 per cent return over the one-year period — same as that of diversified multi-cap funds.

Around 30 of the 36 ELSS funds which have more than a year’s track-record outperformed the BSE Sensex; but only 21 funds beat the broader market BSE 500. Even as the funds rallied by close to 20 per cent in the past one year, the three-year average returns were 6.2 per cent and the 5-year average returns were almost nil .

The top three tax-saving funds’ returns ranged from 28.2 per cent to 32.8 per cent while the bottom three funds returned anywhere between 8.3 per cent and 13.6 per cent.

Reliance Tax Saver Fund, Principal Tax Saving Fund and DSP BR Tax Saver were the top performers while Escorts Tax Plan, ING Tax Saver and L&T Tax Saver were amongst the laggards.

The funds that rallied during the rally which began in December last year were the top performers. On the other hand, funds which shifted to cash holdings during last year’s market lows couldn’t benefit.

Consistent performers such as Religare Tax Plan, L&T Tax Advantage (earlier Fidelity Tax Advantage), Sahara Tax Gain and Franklin India Tax Shield, which gave 4-5 per cent return during the five-year period, were average performers over the last one year. Funds such as HDFC Tax Saver Fund, HDFC Tax Advantage Fund and Taurus Tax Shield, which were amongst the top performing funds a couple of years ago, were also amongst the laggards in the last one year.

Top performers

Reliance Tax Saver Fund benefited from higher exposure to mid-cap stocks. Around 62 per cent of its portfolio had investments with market cap of less than Rs 7,500 crore as of October end.

Lower exposure to banks, especially public sector banks and IT stocks, also helped it perform better than its peers. The company had very little cash holdings over the last one year which helped it participate in the rally better.

Principal Tax Saver, on the other hand, is the large-cap focussed fund which benefited from individual stock exposure which rallied significantly. Apart from higher exposure to private banks and NBFCs, a few stocks such as Hathway Cables, Sun TV, ITC, Tata Motors DVR, Godrej Industries and HCL Technologies helped prop up its returns.

DSP BR Tax Saver’s diversified holding with more than 90 stocks in its portfolio allowed it to contain the downside better. The lower cash holdings also helped the fund to benefit from the market rally.

Escorts Tax Plan, the worst performer in the ELSS category, suffered from under-performance of public sector stocks and laggards such as Manappuram Finance, Kalyani Investment Company and SPIC.

If the direct tax code is implemented, the tax-savings nature of these funds may cease to exist.

Published on December 08, 2012

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