Equity markets have been in a corrective mode over the past three months. Investors with a long-term perspective can take advantage of the correction and buy the units of DSP Tax Saver which has consistently delivered good returns across market cycles. It is an equity- linked savings scheme (ELSS) with a 12-year track record.
ELSS funds have a lock-in period of three years. The amount invested in an ELSS is eligible for tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act. The lock-in presents long-term growth potential while eliminating the short-term ambiguity in the equity markets.
Over five- and 10-year periods, the fund has outpaced its benchmark, the Nifty 500 TRI, by delivering a compounded annual growth rate (CAGR) of 9.7 per cent and 13.3 per cent, respectively. Over the past three years, the scheme has delivered a CAGR of 7.5 per cent return, which was lower than the benchmark return of 8 per cent but higher than the category average return of 6.3 per cent.
DSP Tax Saver has contained the downside well in the recent market correction. It has given a positive return of 0.8 per cent in the past one year while the benchmark and category posted negative returns of 5.8 per cent each. Over the past year, the fund has outpaced some of the category veterans such as Axis Long Term Equity, Aditya Birla Sun Life Tax Relief 96 and HDFC TaxSaver.
Performance and strategy
Banking has been the scheme’s preferred sector, where it allocated as high as 33.9 per cent of its portfolio in this June and then trimmed it subsequently to 25 per cent. The fund has also reduced its allocation to software and finance. On the other hand, it was has upped its allocation to debt, petroleum products and automobiles in recent times. Besides, it has re-entered telecom and transport sectors.
The scheme invests mainly in large-cap-based growth-oriented stocks. The fund is underweight on financial, software and FMGC and overweight on construction, healthcare, engineering and textiles compared with its benchmark. It holds 64 stocks in its basket; the top 10 stocks make 40 per cent of its portfolio.
Barring the top five stocks, the allocation towards to individual stocks is less than 3 per cent, which helps mitigate risk. It recently added some large-cap stocks including Maruti Suzuki India, Bharti Airtel, IndusInd Bank, Bajaj Finance, HPCL, Mahindra & Mahindra Financial Services and TCS.