Personal finance, tax-saving funds: A look at several funds and how they are managedhttps://indianexpress.com/article/business/banking-and-finance/personal-finance-tax-saving-funds-a-look-at-several-funds-and-how-they-are-managed-5107902/

Personal finance, tax-saving funds: A look at several funds and how they are managed

Investors choose tax-saving funds as part of tax planning. However, the funds' performance rely majorly on where they are invested and how they are managed.

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The fund follows a bottom-up, benchmark-agnostic investment approach focused on investing in companies that are efficient allocators of capital.

Written by Morningstar

Investors choose tax-saving funds as part of tax planning. However, the funds’ performance rely majorly on where they are invested and how they are managed. Following are several such funds and the approach their managers follow.

L&T Tax Advantage
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Soumendra Nath Lahiri
3-year annualised return (Mar 15): 13.40%

The fund follows a bottom-up, benchmark-agnostic investment approach focused on investing in companies that are efficient allocators of capital. It focuses on the profitability and attractiveness of a business, competitive position within its industry, and stage in the business cycle. The benchmark-agnostic approach may result in large overweight or underweight positions relative to the benchmark, though a risk-management function plays a critical role in highlighting key portfolio risks. The process is sound and the execution has been good, thus producing pleasing results for investors so far.

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DSP BlackRock Tax Saver
Benchmark: BSE 200
Investment style: Large growth
Fund Manager: Rohit Singhania
3-year annualised return (Mar 15): 12.21%

The fund uses sector-based model portfolios created by analysts as an initial reference point, and plies an overlay by using the change in return on capital employed/return on equity compared with a company’s intrinsic growth and price-to-book value as an appropriate measure to evaluate stocks. The fund prefers investing in businesses with rising/high ROEs and cash flows. Although the manager is rooted to a bottom-up style, top-down factors are not entirely ignored as the macroeconomic scenario and government policies, combined with industry/sector analysis, are used to identify and give an overweighting to sectors that demonstrate strong pricing power.

ICICI Prudential Long Term Equity Fund (Tax Saving)
Benchmark: BSE 200
Investment style: Large growth
Fund manager: George Joseph
3-year annualised return (Mar 15): 8.54%

The fund manager uses a combination of top-down and bottom-up approaches for selecting stocks, with the latter being more dominant. The manager is fairly valuation-conscious; although he invests in both growth- and value-style stocks, he avoids paying too much for an issue. The fund prefers stocks that are cheaper than their peers and historical valuations on the price/book value and P/E measures. Its investment style is contrarian at times, with investments in beaten down stocks, particularly when the issue is negatively affected because of poor market sentiments.

SBI Magnum Taxgain
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Dinesh Balachandran
3-year annualised return (Mar 15): 6.93%

Stocks are selected using both top-down and bottom-up approaches, with the latter being more prominent. It considers the macroeconomic scenario while taking sector/thematic bets, but the benchmark alignment has made this aspect of the strategy less relevant. While benchmark alignment can theoretically reduce the risk of relative underperformance, the valuation-conscious approach will result in the fund struggling in sharply rising or momentum-driven markets. The investment approach is common enough, and its execution will play a key role in determining the fund’s long-term success.

Axis Long Term Equity
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Jinesh Gopani
3-year annualised return (Mar 15): 8.98%

The fund looks for companies that have the capability to grow over a 3- to 5-year period and seeks to find quality names at reasonable valuations. However, the manager can tend to invest in stocks that are slightly expensive in relative terms (reflected in the fund’s higher P/E ratio) as long as they meet his quality and growth criteria. The portfolio comprises about 50-70 per cent large-cap stocks, while small and mid-caps constitute the remaining portion. Stock-picking is based on fundamental bottom-up approach with an emphasis on top-down risk parameters, liquidity, and internal volatility targets.

Franklin India Taxshield
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Lakshmikant Reddy
3-year annualised return (Mar 15): 8.17%

The investment process is research-intensive and relies heavily on a bottom-up approach. Portfolio managers and analysts jointly decide on the coverage list where they look for growth companies that fit their qualitative requirements. The fund manager is valuation-conscious and avoids areas of the market that in his opinion are richly valued. The process is sound and workable over the long term and it has been executed with skill by the investment team so far.

HDFC Tax Saver
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Vinay Kulkarni
3-year annualised return (Mar 15): 8.25%

Its manager chooses companies with good corporate governance standards and strong business models that enjoy sustainable advantages in the form of barriers to entry, market share, low cost of production, technological edge, and capable management teams. While ideas are leveraged from sell-side analysts, investment decisions are based on the team’s own internal research. The manager is benchmark-agnostic when constructing the portfolio. He aims to derisk the portfolio by investing in uncorrelated sectors of the economy. Although the fund took cash calls in 2011, they are no longer a part of the investment strategy.

Reliance Tax Saver
Benchmark: BSE 200
Investment style: Large growth
Fund manager: Ashwani Kumar
3-year annualised return (Mar 15): 7.04%

The fund scouts for companies with strong and sustainable business models. Its manager plies a growth-at-a-reasonable-price strategy. He will be flexible with valuations and pay what he thinks is fair price, given the company’s growth prospects. For instance, since end-2010, the fund largely avoided consumption stocks due to high valuations; however, it has bought into a few consumption names post-2014, based on their fundamentals and growth prospects. The fund looks for factors including management quality, superior technology, favourable cost margins, and brand equity, which can give the company a sustainable edge vis-à-vis the competition. The top-down approach is important. The fund is typically run as a sector heavy, concentrated portfolio with a major portion of its assets under management invested in three or four meaningful sectors.

Sundaram Diversified Equity
Benchmark: BSE 200
Investment style: Large growth
Fund manager: S Krishnakumar
3-year annualised return (Mar 15): 10.94%

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The fund follows a combination of a top-down and bottom-up approach, and seeks to invest in growth stocks that can tend to double over the fund’s investment horizon. While the fund house has a fairly strong thematic undercurrent that drives sector selection, stock selection remains primarily driven by fundamentals. The manager tries to balance the stock’s perceived return, growth, and valuations while maintaining a lower liquidity risk. The fund adopts a multi-cap strategy. The portfolio is slightly concentrated at a sector level and can tend to deviate significantly as compared with the fund’s benchmark weights.

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