Best Tax Saving MF Scheme

With the start of the New Year, it’s a wake-up call for the taxpayers to start the search and invest in various tax saving instruments before the fiscal year ends. However, if you are a follower of DSIJ, then ‘All Izzz Well!’ That is because in tune with our annual exercise we have come up with six funds that will not only help you in saving tax, but also increase your wealth over the years to come. But why only ELSS, when we have various other instruments that can avail for us the tax saving benefits available u/s 80c? Why not invest in PPF, NSC, ULIPs, etc? The important factor is that ELSS (equity-linked saving scheme) funds provide the best of both the worlds, i.e. tax savings as also investment.
[INSERT_4]

• First we compiled the data of all the ELSS schemes.
• Then we sorted this data depending on the returns in three time periods, i.e. in the last three years, one year and six months.
• After sorting, we ranked these funds for all the three time periods depending on their performance.
• Once the ranks were given, we gave weights to every rank as: 50 per cent weight give to three year ranking, 30 per cent weight to one year return, and 20 per cent weightage for six months. The reason for this weighted average selection criteria was to give more importance to those funds that have consistently performed in the long term and have also managed to bag decent returns in the short term.
• Then we multiplied these ratings with their specific ranks to arrive at a rating for all the three periods.
• We then arrived at our total ratings by adding up the rating of funds for all the three periods.
• Finally we ranked all these funds depending on their total ratings and selected the funds in sequence taking lowest ratings first.
• This systematic ranking helped us to bring out the top funds in the ELSS category.
• After this, the funds were scrutinized on the basis of the fund houses to arrive at the final six best funds that have not only performed well in the past but are expected to perform better in the coming future.
• And at last we selected those funds whose corpus sizes are more than Rs 100 crore.

[PAGE BREAK]
ICICI Prudential Tax Plan

[PAGE BREAK]

HDFC Taxsaver Fund
NAV: Rs 61.92 ................................as on 08/01/2010
AUM: Rs 2084.05 cr. ......................as on 31/12/0009
CASH: Rs 95.41 cr. ........................as on 31/12/2009
This is a must for every tax saver and even any individual investor’s portfolio. The reason for this is simple – the fund has not only outperformed its category returns on a consistent basis over a long period of over 14 years, but has also managed to be in the top notch by whipping the category returns by huge margins in this period. In fact, its performance has been so commendable in the last one year that it has reinstated our trust in it and forced us to again include it in our top six ELSS schemes. The fund has done well during both the bullish as well as bearish phases of the markets.

However, the years 2002, 2006 and 2007 have been exceptions when it moved at a laggard pace. In its one- and three-year period, the fund has outpaced its category returns by 1,627 and 198 basis points. Since its inception the fund has rewarded its investors with over 35.42 per cent annualised returns. This is quite incredible, signifying the fund’s consistency over the long run. Such a performance has helped the fund attract the investors’ interest and this is quite visible from its AUM that stood at Rs 2,084.05 at the end of December 2009, the second highest amongst our six selected schemes.

Vinay Kulkarni, a senior fund manager with HDFC AMC, has been managing this fund since November 2006. Under him, the fund has managed to beat the category returns with a decent margin. He also manages equity funds like core and satellite, premier multi-cap and index that have done well in the long run. This is a multi-cap fund which primarily has large-cap stock orientation, resulting in lower volatility. In December 2009, the fund had over 53 per cent of its equity portfolio invested in blue chips.
It flaunted a fairly diversified portfolio of 50 stocks, wherein its top ten holdings contributed around 41 per cent of the total assets. The sectors’ allocation seemed a bit concentrated considering the fact that the top three sectors of the fund contributed 46.21 per cent of the total assets wherein over 20 per cent came from financials (including over 16 per cent contribution of banks), while the pharma-healthcare and IT stocks contributed 16.8 and 9.83 per cent respectively. It held cash to the tune of 4.5 per cent. It does seem to be quite a balanced portfolio suitable for an investor with a moderate risk appetite.

[PAGE BREAK]

Birla Sun Life Tax Relief 96
NAV: Rs 88.41 ................................as on 08/01/2010
AUM: Rs 1195.70 cr. .......................as on 31/12/2009
CASH: Rs 25.58 cr. ........................as on 31/12/2009
It is one of the oldest funds in the ELSS category and has been included in our top six ELSS funds’ list, mainly due to its stunning performance over the years. In the last one year it has emerged as the second best fund in the ELSS category, wherein it managed to beat the category returns by a massive margin of 2,012 basis points. Such a performance has been well received by the investors, considering the fact that the fund’s AUM rose to Rs 1,195.7 crore in December 2009 as against Rs 559 crore in June 2008. However, the fund has been doing very well only in patches and has had its peaks and troughs. In the last five years the fund has been in the top league of the ELSS category in 2009, 2007 and 2006. The years 2005 and 2008 were very ordi-nary when it actually underperformed the average category’s performance. But the fact remains that it has a 15-year-long proven track record over which the annualised return of 33.29 per cent has doubled along with a rewarding dividend history, since its inception. The fund has outpaced its category by 175 basis points in a three-year period. Ajay Garg has been managing this fund since October 2006 and has managed to keep it ahead of its category. At Birla SL, Ajay also manages three other equity schemes that have done well over a long period of time. The fund generally sports a concentrated stock and sectoral portfolio. However, despite it being a multi-cap fund, it has predominantly kept a large-cap bias, which helps the fund to mitigate higher risks taken on account of the portfolio’s concentration.

In December 2009, its top three sectors, i.e. financials, energy and engineering accounted for more than 50 per cent of the total assets, while the top ten stocks contributed around 41 per cent of the net assets. Out of 46 stocks, its frontliners contributed almost 60 per cent of the portfolio. The astute stock-picking and a timely move across market-caps have helped the fund to outperform in the last one year. It held negligible cash in the portfolio at just 1.2 per cent. An investor with a low-to-moderate risk appetite can take limited exposure to this fund.
[PAGE BREAK]
Religare Tax Plan
NAV: Rs 12.81 ................................as on 08/01/2010
AUM: Rs 105.50 cr. ........................as on 31/12/0009
CASH: Rs 4.68 cr. ..........................as on 31/12/2009
Launched in December 2006, it’s the youngest fund with the lowest AUM of Rs 105.5 crore among our list of six selected funds. However, the fund has been so consistent since its launch that despite having completed only three years, it has still managed to be the best fund in this period. The fund has managed to beat the category returns on a regular basis and has outdone the average category by 341 and 658 basis points in one and three years respectively. However the fund’s performance in the shorter period hasn’t been that astounding. The fund’s investment strategy revolves around investing in a concentrated portfolio of around 20-50 stocks without any market-cap, sectoral and style bias and it utilises the approach of bottoms-up stock-picking. Such a flexible investment strategy seems to have worked well for the fund in the longer run. There has been a change of guard in terms of the fund management with Vetri Subramaniam, who heads equity port-folio of the AMC, having taken over from December 2008. And since then the fund has managed to outpace the category returns by decent margins. Vetri looks over the management of all the equity funds at Religare AMC, where they have logged a mixed bag performance over the longer period. In December 2009, the fund had skipped its mandate and invested in 53 stocks which marginally over-stipulated its upper limit of 50 stocks.

The fund’s stock portfolio seems quite diversified considering the larger number of stocks in the portfolio wherein the top ten stocks contributed 33 per cent of the fund’s net assets. The top three sectors that included financials and defensive industries like FMCG and energy together accounted for nearly 43 per cent of the net assets, which seems marginally concentrated. The fund manager currently seems to bet on the mid-cap and small-cap stocks with growth bias that together contributed over 60 per cent of the fund’s equity portfolio and has also lowered its cash levels to below 5 per cent. This may result in higher portfolio volatility. Thus, looking at the fund’s portfolio and its performance over the years, only high risk investors can take limited exposure to the fund.

[PAGE BREAK]

Fidelity Tax Advantage
NAV: Rs 16.51 ................................as on 08/01/2010
AUM: Rs 1133.94 cr. .......................as on 31/12/0009
CASH: Rs 15.58 cr. ........................as on 31/12/2009
If you are one of those conservative investors looking for a fund with proven stability and a decent track record, your search ends here. The Fidelity Tax Advantage fund is the best-suited fund for such investors as it has the lowest beta (volatility) of 0.86 and highest Sharpe ratio (risk-adjusted returns) of 0.42 among our selected list of ELSS funds. The fund has recently completed four years and this is certainly a good achievement considering that it has beaten bigger names in the mutual funds’ industry without taking higher risks.

The lower beta is a result of the predominant large-cap allocation that has helped this fund to contain the losses in the corrective phase of the market in 2006 and 2008. However, such allocation capped the fund’s performance in the bullish phase of 2009 and 2007, wherein the mid-cap and small-cap stocks outperformed their larger peers. Its buy and hold strategy has stood it in good stead. In December 2009, large-cap stocks contributed almost 65 per cent of the fund’s equity portfolio. The fund was almost entirely invested in the equity market and held merely 1.4 per cent in cash. Meanwhile, it held a highly diversified portfolio of 70 stocks with the top ten stocks accounting for a marginal 36.3 per cent of its net assets.

The fund’s top three sectors, viz. financials, energy and healthcare contributed almost 50 per cent of the net assets in totality. Despite such a defensive market-cap and stock strategy, the fund has put up a decent show in terms of 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 363 and 504 basis points in a one- and three-year period. Such a performance has helped this fund to attract a larger audience and raise its AUM to Rs 1,134 crore.

The fund is being managed by Sandeep Kothari since July 2006, thus ensuring stability and consistency in the fund’s management and performance. At Fidelity, Sandeep also manages three other equity funds, viz. Equity, India Growth and International Opportunities, all of them managing to beat their category performances by decent margins. Thus low risk investors can take a larger exposure to this fund.

 [PAGE BREAK]

SBI Magnum Taxgain
NAV: Rs 44.29 ................................as on 08/01/2010
AUM: Rs 5264.85 cr. ......................as on 31/12/0009
CASH: Rs 215.5 cr. ........................as on 31/12/2009
This is another fund that has again made it into our recommendation list owing to its consistent track record over the years. Since its inception in March 1993, this fund has managed to yield an annualised return of 19.94 per cent, which demonstrates the consistency of the fund’s performance over a long period. Such a rewarding track record has helped the fund to be the largest fund in the ELSS category with a huge AUM of Rs 5,264.85 crore at the end of December 2009 that has close to doubled over the last year. The fund delivered a top-notch performance in the period 2003-2006, wherein it was placed among the top five and even remained the best scheme in the category.

However, the fund underperformed the category in the years 1996 to 2002 and 2007. Here, its large-cap exposure helped the fund withstand the blow of the plummet in 2008, which witnessed an average fall of the industry. Jayesh Shroff has been heading this fund from October 2007 onwards and at SBI he also manages three other equity funds that have posted a decent long-term track record. This fund has outdone its category by 356 and 115 basis points over a period of one and three years respectively. The fund is predominantly a large-cap biased fund that follows an investment style that is a blend of growth and value.

Over the years it has been a large-cap fund with a bias for growth stocks, wherein the portfolio is kept well-diversified with a larger number of stocks spread across various sectors. In December 2009, the fund’s portfolio of 73 stocks seemed well-diversified, wherein its top ten stocks contributed almost 34 per cent of the net assets. Like other funds in the category, even this fund holds lower cash that stood at 4 per cent of the total assets. The top three sectors, i.e. energy, financials and engineering together contributed around 46 per cent of the fund’s net assets. Meanwhile, 72 per cent of its equity portfolio was made up of large-cap stocks, wherein high beta sectors like realty and infrastructure accounted for a miniscule part of the fund’s net assets. Such a defensive portfolio bodes well for investors with a lower risk appetite.