Franklin India Taxshield: Buy

As investors scramble to make investments in tax saving instruments closer to the end of the financial year, select equity-linked saving funds make a good choice for generating reasonable returns. Franklin India Taxshield is one such scheme. Investors could buy units of this fund, given that it has a proven record of being among the best in its category.

Over one-, three- and five-year timeframes, the fund has managed to outperform its benchmark — CNX 500, by a margin of 2-5 percentage points.

The scheme’s compounded annual returns of 21.3 per cent over the last five years place it in the top quartile of funds in its category, ahead of peers DSPBR Tax Saver and L&T Tax Advantage. By containing downsides very well during corrections and ensuring reasonable participation during rallies, the fund has managed to ride out market cycles well.

Franklin Taxshield is predominantly a large-cap fund and restricts exposure to mid-cap stocks in its portfolio. Given the volatile markets at the moment and also in the light of improving earnings visibility for large-caps, this might be an appropriate strategy for the fund to follow.

With a track record of over 10 years, it offers a reliable opportunity for investors willing to stay put for about five years at least.

The systematic investment plan (SIP) route can be taken to buy units of the fund though it must be remembered that each instalment is locked for a period of three years. Alternately, small lumpsums can be invested in a staggered manner.

Portfolio and strategy Franklin Taxshield has always had banks as its top holdings across market cycles. Software and pharma are other top segments that the fund holds, the weightage altering in line with market conditions and valuations. It has kept exposure to consumer non-durables quite low and does not go overboard on the sector even during volatile markets, when it is seen as a good defensive. Telecom services too figure prominently in the portfolio.

The scheme generally tends to maintain a cash position of 5-8 per cent of its portfolio across market cycles.

This increased exposure to cash at times affects its full participation in market recoveries, though it does manage to do as well as its benchmark most of the times. The fund’s mid-cap exposure has also fallen considerably over the past three-four years. Earlier, Franklin Taxshield generally tended to take exposure to mid-cap stocks to the tune of nearly 30 per cent of its portfolio.

By following a blend of mostly value-based investing and, to a limited extent, growth as well as defensive strategies, the scheme has positioned itself well over the long term.

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