ELSS as an asset class has various benefits over other tax-saving instruments. It has the potential to generate higher returns for its investors and has a lower lock-in period of 3 years. If you invest in the right schemes, you can gain much higher returns than you can probably expect from a tax saver bank fixed deposit, PPF account, NSC or any other tax-saving schemes. This makes it a worthy avenue for tax planning and long term wealth creation provided you are willing to take higher risk.

Mirae Asset Tax Saver Fund (MATSF) is one such ELSS that aims for wealth creation through equities and tax saving benefit with a single portfolio.

Launched not long back ago in December 2015, MATSF manages a corpus of Rs 3,066 crore. The fund is managed by Mr Neelesh Surana (since inception) who has over 24 years of experience in equity research and portfolio management.

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Tax Saver Fund since inception

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Tax Saver Fund 5 years ago

Data as on January 22, 2020
(Source: ACE MF)

MATSF’s performance since inception has been remarkable. If you had invested Rs 10,000 in the fund on its inception (December 28, 2015), it would have appreciated to Rs 20,396 now (as calculated on January 22, 2020). This translates into compounded annualised growth rate of 19.1%. In comparison a simultaneous investment of Rs 10,000 in its benchmark Nifty 200 – TRI would now be worth Rs 15,775 (a CAGR of 11.9%). MATSF has managed to grab investor’s attention in a short time span dues to its superior performance over the benchmark.

Graph 2: Mirae Asset Tax Saver Fund’s year-on-year performance

Graph 2: Mirae Asset Tax Saver Fund's year-on-year performance

*YTD as on January 22, 2020
(Source: ACE MF)

Launched in December 2015, MATSF does not have long term performance track record to its credit. However, the fund managed to make its presence felt due to its robust performance in this short time span. The year-on-year performance comparison of MATSF with respect to its benchmark Nifty 200 – TRI shows that the fund outpaced the benchmark with a noticeable margin in 3 out last 4 calendar years. Its outperformance over benchmark has been in the range of 6-14 percentage points. MATSF trailed the index only in CY 2018, where it generated negative returns. In the current year, the fund has decent lead over the benchmark till now.

Table: Mirae Asset Tax Saver Fund’s performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Mirae Asset Tax Saver Fund 3,066 9.49 10.70 19.33 NA 13.07 0.27
JM Tax Gain Fund 36 7.05 7.37 15.02 14.35 13.91 0.19
Motilal Oswal Long Term Equity Fund 1,648 1.05 4.61 14.89 15.05 14.03 0.17
Axis Long Term Equity Fund 21,473 8.08 11.37 14.77 15.89 12.90 0.24
Tata India Tax Savings Fund 2,094 7.57 7.38 14.04 13.66 14.28 0.18
Taurus Tax Shield Fund 68 2.31 7.61 13.78 12.07 12.42 0.18
Invesco India Tax Plan 988 4.10 8.88 13.75 14.93 12.44 0.19
Canara Rob Equity Tax Saver Fund 1,005 8.16 9.91 13.59 11.84 12.88 0.19
Kotak Tax Saver Fund 1,068 8.49 6.66 13.51 14.54 12.71 0.17
LIC MF Tax Plan 263 6.13 8.66 13.44 12.29 12.52 0.20
DSP Tax Saver Fund 6,260 7.65 6.23 13.19 14.44 13.57 0.15
IDFC Tax Advt(ELSS) Fund 2,119 -2.13 4.46 13.10 13.66 15.13 0.13
Aditya Birla SL Tax Relief ’96 10,029 0.16 6.37 12.62 14.96 12.93 0.14
PGIM India LT Equity Fund 356 4.63 6.40 12.58 NA 12.05 0.16
Principal Tax Savings Fund 408 -1.79 3.06 12.44 12.19 15.01 0.10
BOI AXA Tax Advantage Fund 266 -1.95 4.41 12.22 11.87 16.56 0.16
Essel Long Term Advantage Fund 59 5.62 5.52 12.03 NA 12.98 0.13
L&T Tax Advt Fund 3,382 -2.84 2.66 11.51 12.23 13.12 0.11
ICICI Pru LT Equity Fund (Tax Saving) 6,707 5.01 7.54 11.39 11.99 12.43 0.12
Quant Tax Plan 10 1.83 3.99 11.29 15.98 14.19 0.09
NIFTY 200 – TRI 5.12 7.73 12.96 10.92 12.46 0.17

Returns are on a rolling basis and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on January 22, 2020
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

MATSF outpaced the benchmark and category average across rolling period, generating a lead of around 3-6 percentage points.

The fund stood among the category toppers across rolling period. JM Tax Gain FundMotilal Oswal Long Term Equity Fund and Axis Long Term Equity Fund were the other top performers during the period.

In terms of risk-return profile, the fund’s volatility has been slightly higher than the category average but nearly in line with the benchmark. Regardless, it managed to reward investors with superior risk-adjusted returns as denoted by its Sharpe ratio.

Investment strategy of Mirae Asset Tax Saver Fund

Categorised as ELSS, MATSF is mandated to invest minimum 80% of its assets in equity and equity-related instruments. The fund has the flexibility to invest across market capitalisation, styles and themes.

MATSF focuses on building a diversified portfolio of strong growth companies having a robust business models, enjoying sustainable competitive advantages as compared to their competitors and having high return ratios across market capitalisation and sectors.

The fund manager invests in companies that are likely to benefit from macroeconomic, industry and sectoral trends (Top down Theme Overlay) after doing bottom up analysis and due diligence, determining quality of management in terms of corporate governance and commitment to minority shareholders etc.

The fund manager aims to have a large base of stocks in the portfolio to avoid concentration risk and liquidity risk.

Graph 3: Portfolio allocation and market capitalisation trend in Mirae Asset Tax Saver Fund

Graph 3: Portfolio allocation and market capitalisation trend in Mirae Asset Tax Saver Fund

Holding (in %) as on December 31, 2019
(Source: ACE MF)

MATSF has the flexibility to invest across market capitalisation. Accordingly, the fund adopts a multicap approach though with a large cap bias. In the last one year, the fund’s allocation towards large caps has been in the range of 70-75%. The fund also looks for opportunities in mid and small caps. Its allocation towards mid caps is in the range of 13-20 while the allocation towards small caps is in the range of 7-10%. The fund remains fully invested in equities, however, it does not resist from taking high cash calls if required. Its cash holdings in the last one year averaged 1.7% of its assets.

Graph 4: Top portfolio holdings in Mirae Asset Tax Saver Fund

Holding (in %) as on December 31, 2019
(Source: ACE MF) 

As on December 31, 2019, MATSF held 55 stocks in its portfolio across various sectors. The top 10 stocks constitute 45.7% of its portfolio. HDFC Bank has the highest stock allocation of 8.9%, followed by ICICI Bank 6.3%, SBI 4.8%, Reliance Industries 4.6% and L&T 4.2%. Rest of the stocks in top 10 holding have allocation in the range of 3-4%. Notably, 5 stocks in its top 10 holding belong to the Banking sector.

In terms of sector, the fund has the highest exposure to financial services which includes Banks 27.7% and Finance 8%. Consumption 11.8%, Infotech 8.2% and Petroleum Products 6.7% follow closely behind. Engineering, Pharma, Textiles, Auto, among others are the other prominent sectors in the portfolio.

Top contributors

In the last one year the fund gained significantly from its holdings in ICICI Bank, Reliance Industries, HDFC Bank, Info Edge (India), Tata Global Beverages and Axis Bank which together contributed weighted return of around 9%. The fund also gained from its holdings in Kotak Mahindra Bank, Dr Lal Pathlabs, TCS, SBI, Titan Company, Divis Laboratories, among others.

On the other hand stocks like Khadim India, Ceat, ITC, Jyothy Labs, L&T, etc. eroded some of its gains.

Suitability Mirae Asset Tax Saver Fund

MATSF has benefited by investing in high growth-oriented stocks but at right valuations, rewarding investors with superior returns over benchmark and category peers. The fund maintains a diversified portfolio of quality stocks with a long term view. However, the concentrated allocation to Banking sector may lead to high volatility, if the sector comes under pressure for any reason. As ELSS come with a lock-in period, investors do not have an exit option in case the scheme underperforms during that period. Such funds are suitable only for aggressive investors having moderately high risk appetite, along with an investment horizon of 5 years or more.

Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here

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