The last day for investing in tax-saving instruments to be eligible for deductions under Section 80C of the income tax in a financial year is March 31. This year due to the disruptions caused by the pandemic-induced lockdown and as many taxpayers were facing cash flow related issues, the deadline has been extended to June 30 for FY 2019-20.
If you are yet to complete your tax-saving exercise for FY 2019-20, the deadline extension will provide some relief. However, if you have exhausted the limit of Rs 150,000 for FY 2019-20, the investment you make will be eligible for deduction in FY 2020-21.
Among the various tax-saving options available, Equity-Linked Saving Scheme (ELSS), an equity-oriented mutual fund, can not only maximise your wealth but can act as an efficient tax planning instrument.
Axis Long Term Equity Fund (ALTEF) is one of the well-managed schemes in the ELSS category that stands out for its ability to generate superior returns across market cycles.
Graph 1: Growth of Rs 10,000 if invested in Axis Long Term Equity Fund 5 years ago
Data as on June 17, 2020
(Source: ACE MF)
ALTEF is the the most popular fund in the ELSS category. Belonging to a process-driven fund house, ALTEF focuses on investing in quality businesses having long term earnings growth prospects. ALTEF has showcased impressive performance since its launch and has rewarded its investors by generating significant alpha over its benchmark. In the last 5 years, ALTEF has generated a compounded return of 8.4%, as against 5.7% CAGR clocked by the benchmark S&P BSE 200 – TRI. An investment of Rs 10,000 in the fund five years back, now would have grown to Rs 14,956 whereas; a simultaneous investment in its benchmark would now be worth Rs 13,178.
Table: Axis Long Term Equity Fund’s performance vis-a-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||7 Year (%)||Std Dev||Sharpe|
|Axis Long Term Equity Fund||19,127||-5.73||-0.94||5.38||8.37||17.29||19.02||0.01|
|Mirae Asset Tax Saver Fund||3,141||-8.63||0.04||4.22||NA||NA||20.91||0.00|
|Canara Rob Equity Tax Saver Fund||929||-7.90||-0.01||4.01||6.56||11.86||19.67||0.00|
|Invesco India Tax Plan||916||-7.09||-2.96||4.01||7.75||15.07||19.96||-0.01|
|BOI AXA Tax Advantage Fund||248||0.33||-4.13||3.76||7.63||13.49||21.34||0.01|
|Aditya Birla SL Tax Relief '96||9,177||-6.37||-4.34||2.62||7.52||15.01||19.30||-0.03|
|Quant Tax Plan||9||-1.68||0.63||2.44||9.83||16.12||22.08||-0.03|
|BNP Paribas Long Term Equity Fund||399||-5.20||-0.21||1.57||5.41||13.05||18.11||-0.03|
|DSP Tax Saver Fund||5,359||-9.62||-1.89||1.30||7.82||13.96||21.21||-0.04|
|Kotak Tax Saver Fund||1,030||-10.99||-0.98||1.25||6.86||12.94||20.43||-0.04|
|S&P BSE 200 – TRI||-12.83||-4.21||1.34||5.67||10.09||20.46||-0.04|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 17, 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.
ALTEF has shown healthy performance over the years and currently ranks among the top performers in the ELSS funds category. The fund has clearly beaten its benchmark across time periods, but also outpaced the category average with considerable margin of 4 to 6 percentage points.
Some of the other top performers in the category are Mirae Asset Tax Saver, Canara Rob Equity Tax Saver Fund and Invesco India Tax Plan.
ALTEF has clearly stood out in terms of risk-adjusted returns. The funds Standard Deviation of 19.02 reflecting its volatility has been slightly lower than the category average and the benchmark. Its Sharpe of 0.01 is among the best in the category and clearly surpasses that of the benchmark.
Investment strategy of Axis Long Term Equity Fund
Classified under ELSS Funds category, ALTEF is mandated to invest at least 80% of its assets in equity and equity related instruments. The scheme endeavours to remain fully invested in equity and equity related instruments at all times. The fund maintains a large cap bias where it looks to invest 50-100% of its assets. It also holds significant allocation in mid-caps, limiting it up to 50% of its assets.
ALTEF invests in a diversified portfolio of strong growth companies with robust business models and sustainable competitive advantage. ALTEF focuses on long term earnings growth prospects and quality as key criteria for stock selection. While picking stocks, the fund’s management aims for companies that are leaders, have solid growth prospects, impeccable execution, strong finances, and decent operating cash flows.
Graph 2: Top portfolio holdings in Axis Long Term Equity Fund
Holding in (%) as on May 31, 2020
(Source: ACE MF)
ALTEF usually holds a compact portfolio of around 30 to 35 stocks, something that is uncommon for funds with large corpus. As on May 31, 2020, ALTEF held about 35 high conviction stocks in its portfolio. The top 10 holdings in the portfolio accounted for a major 64% of its assets. TCS is the top holding in the portfolio having an allocation of 8.5%, followed by Avenue Supermarts, Kotak Mahindra Bank, HDFC Bank,and Nestle India. Most stocks in the portfolio have been held for a period of 2 years or more.
The fund has benefitted immensely from its holdings in Avenue Supermarts, Info Edge (India), Nestle India, Torrent Power, Pidlite Industries, Divi’s Laboratories, etc. in the last one year, while it lost some value in stocks like Bajaj Finance, Kotak Mahindra Bank, HDFC Bank, HDFC, TTK Prestige, among others.
ALTEF invests in a mix of cyclical and defensive sectors. It has placed heavy bets on Banking and Finance that together account for around 28% of its total assets. Infotech has the next highest allocation, followed by Retail, Consumption, Auto, Pharma, Chemicals and Power.
ALTEFF has a very impressive track record of generating superior long term returns as compared to its benchmark and many of its category peers. Its emphasis on picking quality stocks having high growth potential has resulted in healthy returns across market cycles in the past. Although ALTEF holds a compact portfolio, it is not too concentrated to any selective stocks. However, on a broader allocation, the exposure to few sectors is considerably high, which make them prone to high volatility. 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 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