Reliance Tax Saver: Sun or storm, it goes the whole hog

Reliance Tax Saver is a good choice for investors with a high risk appetite. Depending on market conditions, the fund takes anywhere between 20 and 40 per cent exposure to mid- and small-cap stocks to peg up returns. It displays an ability to judge market direction and has outdone its benchmark (BSE 100) and several peer funds squarely in the last five years.

Investments in this fund qualify for tax deduction within the overall limit of ₹1.5 lakh under Section 80C. Both lumpsum and SIP investments have a lock-in of three years.

Reliance Tax Saver is not for those with a conservative mindset. It does not step up cash or debt holdings when markets remain iffy or are on a downspin. Instead, the fund remains fully invested in equities with 98-99 per cent exposure, be it rallies or falls. It is also not the kind to completely exit the more risky small- and mid-cap stocks during troubled times; the fund rather cuts down on them to reduce the downside. In the grey patch of 2011, for instance, the fund held about 20-25 per cent of its portfolio in mid- and small-cap stocks, as against the usual 35 per cent levels seen during rallies. This, along with the strategy of stepping up exposure to defensive sectors, such as pharma, helped the fund contain losses better than the benchmark in this period.

Similarly, the fund identifies potential rallies early on and alters its strategy at the right time. Thus, through the 2014 upswing, the fund pushed up its mid- and small-cap holdings to 36-38 per cent. It also took the right sector calls, latching on to cyclicals such as capital goods and auto/auto ancillaries. The fund clocked 82 per cent returns that calendar year, much higher than the 32-36 per cent returns of the benchmark and the broader BSE 500 index.

Over the last one, three and five years, the fund has scored higher than the benchmark’s returns by 4-19 percentage points and fared better than peers, such as BNP Paribas Long Term Equity and Invesco Tax Plan. Reliance Tax Saver normally has around 50 stocks in its portfolio. It does not shy away from concentrated exposures and usually holds 5-10 per cent in its top stocks. Banks, industrials/capital goods and auto have been its preferred sectors in the last two years, with TVS Motors, SBI and Larsen and Toubro being the top three stocks. Holdings in banks have moved up again in recent months to about 19 per cent after a dip in the second half of 2015. While the fund cut down on stakes in ICICI Bank and Axis Bank in this period, it has added on to Bank of Baroda, SBI and YES Bank. Considering that mid- and small-cap valuations have zoomed, the fund has cut down its holdings in this space to 27 per cent now from 37 per cent a year ago.

Sundaram Clayton, Ramakrishna Forgings and Jubilant FoodWorks are some of the stocks in which stakes have been pruned. Recent additions include Infosys, Idea Cellular and Sun TV while exits include Petronet LNG and M&M Financial.

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