Home Mutual Funds 5 Best Performing Tax Saving Mutual Fund Schemes

5 Best Performing Tax Saving Mutual Fund Schemes

0
SHARE

By IE&M Research

The first step in securing financial life is to optimise your investments. It simply means that your investment must serve the purpose for which it is intended or invested. Many people invest in an instrument that is meant to serve some other purpose but they have invested with an intention to get other benefits out of it. The best example is people do invest in various life insurance policies to save tax. While the purpose of the insurance policy is to protect dependents from any untoward incident; a kind of safeguard for them if and when they lose their lone bread earner. The problem with this type of approach is that it generates sub-optimal return and hence is a hindrance in attaining one’s early financial freedom. Nevertheless, there is an exception to this in the form of equity linked saving schemes (ELSS).

ELSS is one of the best option to save tax and generate wealth over the long-run. It has a clear and distinct advantage over other instruments available in the same category. It comes under the Section 80C of IT act. The maximum amount of deduction that can be claimed under Section 80C is `1.5 lakh for the financial year. The section offers various investment options to the taxpayer that can be used under the category of deduction while calculating total taxable income. For many tax-payers, who are getting reminders from their HR team to submit their income tax proof and for those who are yet to exhaust their entire limit of investments under Section 80C, ELSS or tax saving mutual funds, remains one of the best options compared to other instruments under the provisions.
So why ELSS is being talked about when we have an entire gamut of instruments available that will have tax saving benefits like Public Provident Fund (PPF), National Savings Certificate (NSC), Unit Linked Insurance Plan (ULIP), etc.?

Although, there is a complete range of tax saving instruments available, with varied benefits, we believe ELSS scores higher over other options when it comes to tax saving. ELSS in fact, provides a number of benefits unlike most other such instruments in this segment. The return on investments can be higher most of the time. The following table clearly lists the benefits offered by the ELSS against other instruments.

5 Best Performing Tax Saving Mutual Fund  Schemes 1
Note: All the returns are calculated for direct plans on trailing basis and NAV is taken as on November 22, 2018. Since the direct plans were launched in the year 2013, all the launch dates are taken as January 01, 2013. Although the regular plan would have been for a much longer time.
5 Best Performing Tax Saving Mutual Fund  Schemes 2

Why one should keep investing in ELSS round the year?
Most of the people invest in tax saving instruments when the financial year end is approaching. The data from the investment pattern of the ELSS also shows that most of the investment in ELSS is done in the last three months of a financial year. Nevertheless, if you think tax savings as once-in-a-year ritual, you’re bound to make a big financial mistake.

Deferring your investment can make you put your hard earned money at risk!
Consequences of the delay in planning
• Investing in haste
• Investing without proper contemplation
• Not selecting a right product for your needs

So what should one do?
Plan your investment using SIP
Benefits:
• Lighter on the wallet as you don’t have to shell out `1.5 Lakh at one go
• It brings in discipline to investing
• No last minute planning
• Advantage of rupee cost averaging
• Ease of investment
• No liquidity crisis
• Takes out the risk of market timing

“We have a value investing approach to stock selection”

5 Best Performing Tax Saving Mutual Fund  Schemes 3
S Naren
ED & CIO, ICICI Prudential AMC

What is the reason you attribute behind the ICICI Prudential Long Term Equity Fund doing well even in such volatile market?
We have been conservative in our approach with the portfolio being overweight on pharma, healthcare, auto and power. Also, the large cap bias of the portfolio has aided the performance of the fund.

Please elaborate your stock selection strategy?
We have a value investing approach to stock selection. The Scheme currently is overweight on the pharmaceutical sector due to attractive valuation and on export oriented and services sector like telecom.

After H1FY19, where do you place the recovery in earnings and which sectors you are bullish on?
We believe the earnings have been largely in line with expectations. We are bullish on pharma, healthcare, and manufacturing themes.

After 2018 being a volatile year, how do you see equity investment experience for 2019?
The year of general elections tend to be typically a volatile year for the markets. We believe 2019 is going to be no different. Hence, investors could use 2019 as a year to invest and accumulate in a systematic way through SIPs and STPs into categories such as balanced advantage and equity savings but with a three year horizon.

“The Fund follows predominantly bottom up approach”

5 Best Performing Tax Saving Mutual Fund  Schemes 4
Rupesh Patel
Fund Manager, Tata Mutual Fund

What is the reason you attribute behind the Tata India Tax Savings Fund doing well even in such volatile market?
Tata India Tax Savings Fund follows predominantly bottom up approach to investing. In recent times, overweight calls on select consumer stocks and corporate lenders have helped the fund perform well. The fund’s philosophy of investing with a relatively longer-term view and not to react to short term volatilities has also helped the fund in delivering a superior long term performance record.

Please elaborate your stock selection strategy?
In terms of our investment universe, we broadly focus on two sets of companies. First would be companies, which can compound their earnings over a long period of time, are efficient users of capital, run by decent managements and have innate strengths in their business models. These form the core of our portfolio. Second set is of opportunities, which are more tactical in nature, exist in market due to stock specific/industry specific/market specific developments and makes sense to buy at certain price.

After H1FY19, where do you place the recovery in earnings and which sectors you are bullish on?
The outlook for market level earnings growth is benign from 12-18 months perspective as economy has recovered from the disruptions caused by demonetization and implementation of GST. Corporate banks reporting healthy earnings growth as the credit costs normalize over next few quarters is going to be a meaningful contributor to market level earnings growth.

From sector perspective, we have significant exposure to companies in sectors like consumer and financials. India being a young country, consumer companies have long runaway for growth. Increasing penetration and premiumization are going to be key drivers for growth in consumer companies. As far as financial services sector is concerned, apart from the macro drivers, improving penetration and financialization of savings are some of the key trends that will support the growth. Apart from banks, investors have the option to play these trends through NBFCs, Life Insurance Companies, General Insurance Companies, broking & wealth management companies and asset management companies. Within banks, we have positive stance on private sector banks as they are well capitalized, well invested in technology, earn healthy Return on Assets and have fast growing retail franchises. We believe, at current juncture, some of the large corporate lenders can also deliver healthy returns from medium term perspective.

How do you see equity investment experience for 2019?
It is always difficult to predict near term market moves. However, considering improving outlook for earnings growth, valuation correction, abating macro concerns with crude oil prices correcting, the outlook for market remains positive from medium to long term perspective.

“Bias towards high quality & growth with strong fundamentals”

5 Best Performing Tax Saving Mutual Fund  Schemes 5
Jinesh Gopani
Head Equity, Axis Mutual Fund

What is the reason you attribute behind the Axis Long Term Equity Fund doing well?
Our core philosophy has always been to go in for a fundamentally good quality, high earnings growth story rather than playing momentum in the market. We have kept our long term focus intact with quality bias and high growth prospects. Such an approach has enabled our portfolios to ride out significantly volatile periods of the market. If our current factsheet is compared with the one 5 years back, one will find 21 common stocks and these form close to 69% of our current portfolio (as on 31st Oct 2018). The point here is that, irrespective of market conditions, we have held on to our investment philosophy which got rewarded over time. Another aspect that has worked for us is the product constructs itself. The scheme offers long term orientation for investors as well as fund managers due to its 3-year lock-in mandate. We were able to manage the portfolio and execute our well-defined investment process without having adhoc redemption pressures.

Can you elaborate your stock selection strategy?
At Axis, we primarily follow bottom-up stock selection approach with a minimum 2-3-year view on stocks. Bias towards high quality and growth with strong fundamentals are the key look outs for our fund managers to select companies for their portfolios. Our approach with quality has enabled us to navigate through pockets of pain in the market. There are four principles that the investment philosophy at Axis MF is driven by. These are:
• Strong corporate governance/Strong promoter pedigree
• Secular growth rate of the sector, which is anywhere around 1.5 to 2x of GDP;
• Strong business model, which demonstrates its pricing power in the product category and the business it is in, and ultimately
• Good ROE’s and cash flows

Where do you place the recovery in earnings and which sectors you are bullish on?
Earnings season has been largely in-line and the festival season demand has been as per industry expectations. India has regained about a quarter of its September 2018 underperformance since its bottom relative to EM in the last month. Around 80 to 90 per cent of our portfolio stock of companies delivered good numbers. The private banks continue to do well, the consumption basket barring consumer durables have done well. Despite disappointment from auto sector, auto ancillaries were reasonable in their delivered numbers. The numbers for technology companies were good too while pharma was slightly positive. Rural India, micro India, capital goods seem to be on track for capturing long term growth. The next six months need to be watched rather than deriving conclusions from the last quarter (Q2). We expect demand recovery in the next quarters which might be a better metric to judge the recovery.

How do you see equity scenario in 2019?
2018 has been a tough year for the Indian equity market. Markets have seen a broad based correction and significantly higher volatility compared to the recent past. Concerns in the market rose from both domestic and global factors. However, last month has seen easing off in some areas that seems to have provided some support to the market. Sentiment in the oil market has seen a dramatic change as a result of the sharp correction. High crude prices earlier this year had a rub-off effect on the Rupee and interest rates as well. Significant reduction in oil prices from $86 to $60 has been a really good news for India and if it stays below $65 levels for longer period then Indian macro would be in much better position. There has also been a significant easing of NBFC liquidity challenges. The policy response to the liquidity crunch has been significant.

The significant headwind in the market over the next few months will remain political risk – with general elections less than a year away. Further while growth outlook has improved, growth will need to sustain over the next few quarters. In this context, the impact of the NBFC crunch on demand needs to be closely watched. Also while valuations have come off significantly thanks to the correction, they remain at or above the long term averages.

While there will always be uncertainty in the markets, on balance we think that the situation in the last month has improved dramatically. Further the long term story remains robust as always. Therefore, we will urge investors to not get too hung up on the noise in the market currently and remain focused on their long term investment objectives.

We are cautiously optimistic on markets in light of the market movements and the sentimental negative that sharp falls in sector specific have caused. Such are the times when our investment philosophy gets tested. Most of the money is created in worst of the times. We continue to maintain our investment focus to remain quality centric and we have positioned ourselves appropriately to manage such volatility. We expect elevated levels of market volatility. And hence we suggest investors to stagger their investments or take SIP route which would help them ride this volatility better.

Basics for the new investors

You cannot invest in a mutual fund if you are not KYC compliant. To become KYC-compliant, you need your PAN card and valid address proof.

Individual investors will have to produce his Proof of identity (PAN card copy, copy of the passport, driving license etc.) and Proof of Address (any valid documents). Non –Individual Investors will have to produce certain documents pertaining to its constitution/registration.

The Mutual Fund Industry has appointed CDSL Ventures Limited (CDSL), to carry out the KYC compliance procedure. CDSL through its Points of Service (PoS) accepts KYC Application Forms, verify documents and provide the KYC Acknowledgement. The list of PoS are displayed on the websites of Mutual Funds, CDSL and AMFI. Once the KYC is duly completed in all repects, the investor needs to produce a copy of the acknowledgement to the fund where the investor desires to invest. There is no need to repeat the KYC individually for each mutual fund. The soft copy of the KYC form is available on the website of all mutual funds, AMFI and CDSL. You may also approach your distributor for a form.

If the investor is not in a position to visit PoS personally, the KYC Application Form along with the necessary documents (including originals if the copies are not attested) can be sent through the distributor or representative, who can arrange to fulfill the KYC obligation and obtain the KYC Acknowledgement through any of the PoS. To invest in mutual funds, you will also need an Internet Banking Account. Mutual funds allow investments to be done through debit cards and cheques, but a Net Banking account is an easiest and safest option.

Axis Long Term Equity Fund

5 Best Performing Tax Saving Mutual Fund  Schemes 6
Axis Long Term Equity Fund

This fund from the Axis Mutual Fund has remained one of the best performers in its category since its launch in year 2009 and luckily missed the bear market of year 2008. Nevertheless, the performance of the fund has been phenomenal in other years when the equity market in general did not do well. Its performance in 2011, however, showed an ability to contain losses in a falling market, when it fell less than its benchmark and peers. Even during the bull market it has delivered convincing outperformance of both its benchmark and peers in years – be it 2010, 2013 or 2014. This spectacular performance has helped the fund to become the largest fund in terms of asset size in its category. Since its launch, the fund’s net asset has grown by astounding CAGR of 109.15%. It has increased from 48.3 crore in 2010 to16467.66 crore in year 2018. The fund’s performance dipped in year 2016, however, it could recoup that in last one year and has again been in the top quartile in terms of performance in its category.

48.3 crore in 2010 to16467.66 crore in year 2018. The fund’s performance dipped in year 2016, however, it could recoup that in last one year and has again been in the top quartile in terms of performance in its category.

You cannot invest in a mutual fund if you are not KYC compliant. To become KYC-compliant, you need your PAN card and valid address proof.
Individual investors will have to produce his Proof of identity (PAN card copy, copy of the passport, driving license etc.) and Proof of Address (any valid documents). Non –Individual Investors will have to produce certain documents pertaining to its constitution/registration.
The Mutual Fund Industry has appointed CDSL Ventures Limited (CDSL), to carry out the KYC compliance procedure. CDSL through its Points of Service (PoS) accepts KYC Application Forms, verify documents and provide the KYC Acknowledgement. The list of PoS are displayed on the websites of Mutual Funds, CDSL and AMFI. Once the KYC is duly completed in all repects, the investor needs to produce a copy of the acknowledgement to the fund where the investor desires to invest. There is no need to repeat the KYC individually for each mutual fund. The soft copy of the KYC form is available on the website of all mutual funds, AMFI and CDSL. You may also approach your distributor for a form.
If the investor is not in a position to visit PoS personally, the KYC Application Form along with the necessary documents (including originals if the copies are not attested) can be sent through the distributor or representative, who can arrange to fulfill the KYC obligation and obtain the KYC Acknowledgement through any of the PoS. To invest in mutual funds, you will also need an Internet Banking Account. Mutual funds allow investments to be done through debit cards and cheques, but a Net Banking account is an easiest and safest option.

48.3 crore in 2010 to16467.66 crore in year 2018. The fund’s performance dipped in year 2016, however, it could recoup that in last one year and has again been in the top quartile in terms of performance in its category.


The fund is managed by Mr Jinesh Gopani, who selects and invests in funds that have the capability to grow in next 3-5 years and deliver better returns. While investing in these companies he also checks the valuation, which should be reasonable. But valuation is not a strict criterion of investment till it fulfils growth and quality parameters. The fund typically invests majority part of its assets in large cap stocks. The fund is benchmarked against NIFTY 200 TRI, however, only 25-30 per cent of the scrips are from the benchmark.


The fund is large-cap oriented as compared to its peers. In the last one year, large-cap weights have been at 65 to 75 per cent and mid-caps at 25 to 30 per cent, with marginal small-cap positions. The fund is currently holding 34 stocks in its portfolio. Financials and automobile are the two sectors where fund has been overweight.

Tata India Tax Savings Fund

5 Best Performing Tax Saving Mutual Fund  Schemes 7
Tata India Tax Savings Fund

This is the second time this fund has made it into our recommendation list owing to its consistent track record over the years. Since its inception in March 1996, this fund has managed to give annualized return of 19.04 per cent, which demonstrates the consistency of the fund’s performance over such a long period.

The fund delivered the top-notch performance in last couple of years and stood in the top five in its category. What has helped the fund to perform is its large-cap exposure, which helped the fund to withstand the plummet in 2018. At the end of October 2018, the fund has large-cap stocks which constitute almost 75 per cent of the funds equity portfolio that has been consistent in last one year. The rest 25 per cent is distributed between midcap and smallcap in the proportion 17% and 8% respectively. While it held a diversified portfolio of 46 stocks with top ten stocks accounting for 48.16 per cent of net assets. The top three sectors namely Financials, FMCG and Services contributed almost 57 per cent of the net asset in totality.

The fund’s strategy relies on buying businesses which have compounding characteristics, strong growth potential and high capital efficiency. A part of the portfolio is allocated to stocks in special situations arising out of the market, industry or company developments. Despite such a defensive market-cap and stock strategy (large cap oriented), the fund has put up decent show in terms of the relative performance with its category peers in the long run and a higher sharpe ratio, mainly due to the right sectoral and stock calls. The fund has outpaced its category returns by 135 basis points and 229 basis points in three year and five-year period.

Although the fund has not been a star performer during the earlier bull phase, it covered those lost ground during the last bull phase therefore, its bit risky. Hence this fund is suited for investors with some risk appetite.

ICICI Prudential Long Term Equity Fund

5 Best Performing Tax Saving Mutual Fund  Schemes 8
ICICI Prudential Long Term Equity Fund

This is a fund from India’s largest domestic mutual fund house, whose performance lagged in last couple of years, however, it has picked up recently. In last two years period, the fund was marginally able to beat its category and underperformed its benchmark. Nonetheless, in last one year the fund has been able to meet the performance of both its category and benchmark. In last one year it has outperformed the category by 727 basis points and benchmark by 411 basis points. Even in other time frames including 10-year, fund has been able to beat its category by huge 684 basis points. The fund is being able to perform better in current period because of its large cap bias and being overweight on Pharmaceutical and Power space. The fund has invested 70 per cent of its corpus in large cap companies while healthcare space account for 17.05 per cent of total assets only after Financials that account for 22.54 per cent of total assets. It also shows that the fund is predominantly a large-cap biased fund that follows the investment style that is the blend of growth and value. And over the years it has been a large-cap fund with bias for growth stocks wherein the portfolio is kept well diversified with larger number of stocks spread across various sectors. At the end of October 2018 the Fund holds 39 stocks in its portfolio which is well diversified wherein the top ten stocks contributed almost 46.43 per cent of the net assets. The top overweight stocks in the fund are ITC and NTPC that account for 6.73% and 5.41% of total corpus. The fund with a track record of over 19 years; the returns it has generated during this time, speaks volumes of the fund’s capabilities. Hence this fund can be an excellent tax-saving option for those with moderate risk appetite having a long term investment horizon. The fund is being managed by
Mr Harish Bihani (Fund Manager), and Mr Sankaran Naren (ED and CIO, ICICI Prudential Mutual Fund).

L&T Tax Advantage Fund Growth

5 Best Performing Tax Saving Mutual Fund  Schemes 9
L&T Tax Advantage Fund Growth

This is a fund with a long history of more than 10 years. L&T Tax Advantage Fund, which was earlier known as Fidelity Tax Advantage Fund was launched in year 2006. The fund has generated good returns in all market phases. Even during the two years—2008 and 2011—when the market was in a slump, it has outperformed the benchmark index. Its mandate is to have at least 60 stocks in its portfolio— 66 stocks now at the end of October 2018—and the resultant low concentration risk is one reason for its good performance.

The fund is managed by Soumendra Nath Lahiri who is CIO of the Fund House and he invests in companies that are on top of his conviction list. The stock selection strategy followed by the fund manager is bottom up. Typically those companies are selected that have strong management or promoter and are efficient asset allocator reflected in higher return ratios. The fund is agnostic to its benchmark and invests even outside of that. Therefore, you may find fund being overweight and underweight at a sector level. The fund manager prefers having a diversified portfolio and hence as 66 stocks at the end of October 2018. Moreover, at a stock level there is no company that has weightage of more than six per cent. Graphite India that has the largest weight is 5.02% of total assets. Rest all the stocks have less than five per cent of weightage in the fund. In terms of sector weight the top three sectors that include Financials, Construction and Services together contributed around 46 per cent of the fund’s net assets.

Typically those companies are selected that have strong management or promoter and are efficient asset allocator reflected in higher return ratios. The fund is agnostic to its benchmark and invests even outside of that. Therefore, you may find fund being overweight and underweight at a sector level. The fund manager prefers having a diversified portfolio and hence as 66 stocks at the end of October 2018. Moreover, at a stock level there is no company that has weightage of more than six per cent. Graphite India that has the largest weight is 5.02% of total assets. Rest all the stocks have less than five per cent of weightage in the fund. In terms of sector weight the top three sectors that include Financials, Construction and Services together contributed around 46 per cent of the fund’s net assets.

The fund has low exposure to small-cap stocks and the fund manager’s bottom-up strategy of selecting stocks that are likely to do well in the next 3-5 years have also helped the fund fare well. Low risk profile and higher return places this fund high on the risk-return parameter. It can be considered a suitable pick among tax planning funds.

LIC MF Tax Plan

5 Best Performing Tax Saving Mutual Fund  Schemes 10
LIC MF Tax Plan

LIC MF Tax Plan, which was earlier known as Dhan Tax Saver ’97 has a long history, however, it has never been in the top quartile in terms of performance among its category. It has underperformed in last two calendar year out of five calendar years. The reason it came to our radar is because it has outperformed its benchmark in last two years continuously. In last one year when the category average returns have been negative 4.83 per cent, the Fund has delivered positive return of 1.23 per cent. The recent performance has helped it to beat category returns in last three year. The main reason behind such a performance is its tactical allocation across sectors, stocks and market-caps. The fund manager in one year has made all the right moves to get the fund’s performance on the right track. It has put almost one fifth of its asset into debt instruments. This call worked for the Fund when there was heightened volatility in the stock market. At the end of October 2018, it has allocated 80% of its total assets to equity and rest into debt.

At the end of October 2018, the Fund’s sectoral portfolio seemed to be well diversified as top three sectors that were Financials, Chemicals and FMCG, together contributed about 47% of the total assets of the Fund. Even in terms of number of stocks and their weightage seems to be well diversified. Not a single company has more than 6 per cent of total assets. The fund has total of 42 stocks in its portfolio. The top 10 stocks hold only 37.54 per cent of total assets. The Fund is well diversified even in terms of asset allocation among equity. Out of total corpus 57 per cent goes to large cap stocks, 37 per cent goes to midcap stocks and 5 per cent to small cap stocks.

The fund is well suited to someone who can take higher risk as the Fund has just started to outperform and does not have long history of outperformance.

SHARE
Previous articleIn Defence of the Two Poster Boys: Vijay Mallya & Anil Ambani
Next articleDespite all, still on a strong footing
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.