Amidst volatility in the equity market investors have resorted to profit booking. Hence, inflows in equity-oriented mutual funds, including inflows in Equity-linked Savings Schemes (ELSS), have remained muted over the past few months. Poor performance of schemes across categories as compared to the benchmark can also be attributed for lack of investors’ interest.
Despite this, ELSS cannot be ignored as a worthy tax-saving instrument because it offers the dual benefit of tax saving as well as capital appreciation. Many ELSS have performed well over the longer time frame of five years or more.
ELSS has the potential to generate higher returns than other tax saving instruments, which mostly invest in fixed-income instruments. Thus, it can help you to beat inflation and move closer to your desired corpus.
Canara Robeco Equity Tax Saver Fund (CRETS) is one of the oldest schemes in the ELSS category that has made it to the list of top performers due to its superior performance in the last couple of years.
Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Tax Saver Fund 5 years ago
Data as on November 10, 2020
(Source: ACE MF)
CRETS has generated returns at 18.6% CAGR since its inception in 1993. However, the journey of its performance was not very smooth. The fate of the fund as well as the fund house was influenced by the instability of the fund management team that saw a high churn during 2011-2012 and 2014-2017, the impact was witnessed across its schemes. However, the current team seems to be relatively stable as it has expanded over the years with proper back-ups at the core position. Moreover, the performance of almost all the schemes across the fund house has improved over the last couple of years and made it to the list of top quartile performers. In the last 5 years, CRETS has appreciated at a CAGR of 12.8% CAGR, better than 11.3% CAGR generated by its benchmark S&P BSE 100 – TRI index. An investment of Rs 10,000 in the fund 5 years back would now be worth Rs 18,285, as against Rs 17,089 for the simultaneous investment in its benchmark.
Table: Canara Robeco Equity Tax Saver Fund’s performance vis-à-vis category peers
|Scheme Name||Corpus (Cr.)||1 Year (%)||2 Year (%)||3 Year (%)||5 Year (%)||7 Year (%)||Std Dev||Sharpe|
|Canara Rob Equity Tax Saver Fund||1,217||16.79||15.27||11.38||12.81||15.35||20.44||0.099|
|Mirae Asset Tax Saver Fund||4,463||14.34||15.66||10.48||—||—||22.18||0.082|
|Axis Long Term Equity Fund||22,632||6.88||12.94||10.10||12.96||19.37||19.55||0.060|
|Quant Tax Plan||19||25.27||15.64||9.37||16.21||20.10||24.45||0.082|
|BOI AXA Tax Advantage Fund||319||21.18||18.29||8.15||13.55||16.28||21.91||0.051|
|Invesco India Tax Plan||1,154||9.61||10.77||7.82||12.37||17.51||20.60||0.055|
|JM Tax Gain Fund||40||6.86||12.81||6.73||13.53||17.26||22.06||0.027|
|Union Long Term Equity Fund||274||10.91||11.76||6.60||8.81||11.53||20.53||0.029|
|Kotak Tax Saver Fund||1,312||8.25||11.31||6.47||11.80||16.39||21.17||0.032|
|BNP Paribas Long Term Equity Fund||453||10.91||14.06||6.33||10.53||15.09||18.77||0.024|
|S&P BSE 100 – TRI||6.94||9.30||6.93||11.30||12.39||21.24||0.034|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on November 10, 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.
The recent performance of CRETS has been exceptional, which has helped in scaling up its performance over the long term. CRETS not only has the ability to participate in the market recoveries and rallies, but has also limited the downside for its investors.
With an absolute return of 16.8% in the last 1 year, the fund has outscored the benchmark and category average by a remarkable margin has turned out to be the top performers. Its returns over the longer time horizon is reasonable, where the fund has beaten some of the popular category peers and delivered returns higher than the benchmark.
With a standard deviation of 20.44%, the fund has shown lower volatility in performance and generated superior risk-adjusted returns for its investors. Its Sharpe Ratio indicating risk-adjusted returns reflecting its ability to contain risk has been among the best in the category, far better than the benchmark.
Investment strategy of Canara Robeco Equity Tax Saver Fund
CRETS is an actively managed fund that focuses on growth-oriented investment style with an aim to generate long-term capital appreciation. It follows a multi-cap portfolio strategy and holds a well-diversified portfolio spread across market caps.
The fund follows a mix of top-down and bottom-up approach to stock picking with preference for high growth oriented stocks in attractive looking sectors. CRETS seeks to benefit from long term investing due to its lock-in and has a blended portfolio of diversified stocks with GARP (Growth at Reasonable Price) style of investing.
The fund seeks to identify companies with strong competitive position in good business and having quality management. The fund management gives high importance to Qualitative features, management and governance. It also looks at Quantitative parameters by analyzing the balance sheet.
The core focus remains on earnings, growth and cash flow generating businesses. The fund managers use valuation to determine the weight, i.e. underweight / overweight position of stocks and sectors in the portfolio. CRETS holds a pre-dominant large cap portfolio, where at least 60% of its asset is invested into large caps and maximum 40% into mid and small caps.
Graph 2: Top portfolio holdings in Canara Robeco Equity Tax Saver Fund
Holding in (%) as on October 31, 2020
(Source: ACE MF)
CRETS usually holds a well-diversified portfolio spread across market caps. As on October 31, 2020, the fund held 52 stocks in its portfolio with top holding in large cap names like Infosys, HDFC Bank, ICICI Bank, Reliance Industries, TCS, etc. The top 10 holdings in the portfolio together accounted for around 46% of its assets. With active portfolio management, the level of churning in the portfolio is on the higher side. The turnover ratio of the portfolio is currently trending in the range of 150% to 200%.
The fund’s encouraging performance in the last one year has been driven by stocks like Divi’s Laboratories, L&T Infotech, Atul, Asian Paints, Aarti Industries, etc. In the recent past, the fund managers have booked substantial profits in names like Alkem Laboratories, Shree Cement, Escorts, BhartiAirtel, among others.
In terms of sector holdings, CRETS maintains a mix of defensives and cyclicals in the portfolio. Banking and Finance stocks together form around 23% of its portfolio while Infotech follows closely behind. Auto, Consumer Durables, Pharma, Consumption, etc. were among the other core sectors in the portfolio. Over 88% of its portfolio was concentrated across the top 10 sectors.
CRETS maintains a well-diversified portfolio of quality stocks with a long-term investment view. Despite being an aggressive growth-oriented fund, the fund managers avoid taking momentum bets and focus on quality stocks with solid growth potential in the long run.
Being benchmark agnostic, CRETS clearly avoids benchmarking the index. The fund managers decide the weight on each stock, irrespective of their weightage in the index. Hence, the performance of the fund may deviate significantly from the benchmark.
While the prolonged underperformance of the fund in 2016-2017 was a major concern for its investors, its current performance is exceptionally on track. This makes CRETS suitable for investors with high risk appetite and investment horizon of at least 5 years.
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