Kotak Tax Saver: Offers capital appreciation and saves tax

Investors looking at equity-linked saving schemes (ELSS) for tax planning can consider investing in Kotak Tax Saver. While the fund is not a chart topper and has only marginally outperformed its benchmark over the long run, its recent category-beating performance has brought it back in focus.

Over the last year, the fund has beaten the benchmark by a notable 3 percentage points.

The fund has a long-term track record of over 10 years, and has been placed among the top quartile of the ELSS category over last one-, three- and five-year periods.

Over the 10-year period, the scheme has delivered an annualised return of 15.8 per cent. On a three-year rolling return basis over the past five years, the fund has beaten its benchmarks 64 per cent of the time.

ELSS funds offer the twin benefits of growth in capital and tax savings, albeit with a three-year lock-in.

With Indian equities ruling at new highs, amid volatility, and the election uncertainty, investors can consider investing in the fund by the way of monthly systematic investment plan (SIP).

Strategy and portfolio

The fund has the flexibility to hold a well-diversified portfolio, and invests across sectors and market capitalisation.

It allocates about 60 per cent of its portfolio to large-caps. This has helped the fund over the last one year, when mid- and small-caps underperformed.

The fund’s mid-cap allocation is 26 per cent, and small-cap is 11 per cent. Across market capitalisation, the fund invests in a blend of value and growth stocks. The fund is overweight on sectors such as construction, engineering, software and metals compared with its benchmark.

While the most-preferred sector is financial services with about 29 per cent allocation, the fund is slightly underweight on FMCG and automobiles.

The top three sector allocations are financial services, energy and consumer goods — constituting more than 50 per cent of the portfolio. The fund also takes cash calls during volatile markets. It recently increased cash allocation to 3.6 per cent.

Over the past six months the fund has increased allocation to the banking and services sectors, while trimming exposure to the pharma space which continues to witness headwinds.

Kotak Tax Saver holds about 51 stocks in its kitty.

Key bluechip stocks — RIL, HDFC Bank, ICICI Bank and TCS — have delivered good returns and remain part of the core portfolio of the fund. It recently added Kotak Mahindra Bank and Parag Milk Foods while exiting Lupin.