The deadline for investing in tax-saving instruments for FY 2020-21 is fast approaching. If you have not yet started tax planning, it is time to seriously consider investing in worthy tax-saving instrument soon to avoid the last minute rush.
If tax planning is viewed as part of your financial plan at the start of a financial year, it can not only help us save taxes but also help in achieving our financial goals. Therefore, just like investment in any other instruments, tax-saving instruments too should be selected after thorough research of various options available as well as careful evaluation of our financial needs.
One of the most worthy tax-saving instruments is Equity Linked Savings Scheme (ELSS), a diversified equity fund that provides investors the combined benefit of tax saving as well as wealth creation.
Axis Long Term Equity Fund (ALTEF) is an ELSS known for generating superior returns as compared to its benchmark and category peers.
Graph 1: Growth of Rs 10,000 if invested in Axis Long Term Equity Fund 5 years ago
Data as on December 23, 2020
(Source: ACE MF)
ALTEF is the most popular fund in the ELSS category due to its superior performance record. The fund focuses on investing in quality businesses having long term earnings growth prospects. It seeks opportunities predominantly in large caps with significant allocation to mid-caps through bottom-up stock picking approach. ALTEF has showcased impressive performance since its launch and rewarded its investors by generating significant alpha over its benchmark. It has managed to limit downside in bear phases and participated well in bull phases to deliver reasonable returns. In the last 5 years, ALTEF has generated compounded return of 15%, as against 13% CAGR clocked by the benchmark index. An investment of Rs 10,000 in the fund five years back would now have grown to Rs 20,142 whereas a simultaneous investment in its benchmark would now be worth Rs 18,386.
Table: Axis Long Term Equity 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||1,333||24.99||18.98||13.31||14.34||16.32||20.85||0.132|
|Axis Long Term Equity Fund||25,618||17.84||17.23||12.63||15.02||20.25||20.80||0.120|
|Mirae Asset Tax Saver Fund||5,044||20.14||18.22||11.49||—||—||22.75||0.115|
|Invesco India Tax Plan||1,280||16.74||14.40||9.25||13.73||18.17||21.13||0.084|
|JM Tax Gain Fund||45||15.71||16.17||8.77||15.08||17.90||23.10||0.082|
|Kotak Tax Saver Fund||1,445||14.47||14.48||8.17||13.56||17.22||21.74||0.072|
|Union Long Term Equity Fund||299||18.53||15.29||7.99||10.01||12.41||21.05||0.069|
|UTI LT Equity Fund (Tax Saving)||1,558||18.65||15.27||7.48||11.97||14.49||21.92||0.064|
|ICICI Pru LT Equity Fund (Tax Saving)||7,277||11.67||10.66||7.42||10.90||15.15||22.38||0.060|
|BNP Paribas Long Term Equity Fund||488||16.05||16.57||7.39||11.21||15.85||19.28||0.062|
|S&P BSE 200 – TRI||14.41||13.12||8.72||12.94||14.03||22.14||0.078|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 23, 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 showcased an impressive performance across time periods and it rewarded investors by generating significant alpha over its benchmark – S&P BSE 200 – TRI. On a longer 5-year and 7-year return period, the fund has managed to outpace the benchmark index by a significant margin, and has also fared better than many of its prominent category peers. On a shorter time horizon, it has managed to maintain a superior lead over its peers and the benchmark.
ALTEF has shown a fair level of stability even in extreme conditions. Its standard deviation of 20.05% denotes lower volatility compared to the category average and its benchmark. Its risk-adjusted return (Sharpe Ratio) 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.
ALTEF has the flexibility to invest across market capitalisation, but it prefers to maintain a large cap bias with a significant allocation to midcaps. Though the funds benchmark is S&P BSE 200, the investment is not limited to the companies constituting the benchmark. The fund is completely benchmark agnostic when it comes to stock and sector selection.
Belonging to a fund house that gives high preference to growth, ALTEF invests in a diversified portfolio of strong growth companies with robust business models and sustainable competitive advantage. Accordingly, the portfolio is built utilising the bottom-up stock selection process, focusing on the appreciation potential of individual stocks from a fundamental perspective. While picking stocks the fund management aims for companies that are high quality leaders, have solid growth, impeccable execution, strong finances, especially decent Operating Cash Flows and less geared.
Graph 2: Top portfolio holdings in Axis Long Term Equity Fund
Holding in (%) as on November 30, 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 November 30, 2020, ALTEF held about 32 high conviction stocks in its portfolio. The top 10 holdings in the portfolio accounted for a major 63% of its assets. Bajaj Finance is the top holding in the portfolio having an allocation of 9.7%, followed by HDFC Bank with an allocation of 7.9%. The other stocks in the top 10 holding carry exposure in the range of 4-7% of the assets. Most stocks in the portfolio have been held for a period of more than 3 years.
In the last one year the fund has benefited immensely from its exposure in companies like Info Edge (India), TCS, Bajaj Finance, Divis Laboratories, Avenue Supermarts, Kotak Mahindra Bank, HDFC Bank, etc. It also benefitted from its holdings in Nestle India, Pidilite Industries, Astral Polytechnik, Torrent Power, among others.
ALTEF invests in a mix of cyclicals and defensives. It has placed heavy bets on Banking and Finance that together account for around 36% of its total assets. Infotech has the next highest allocation, followed by Pharma, Consumption, Auto, Retailing, Chemicals, Auto Ancillaries, and Power. Axis as a fund house avoids investing in PSUs, highly cyclical and highly regulated sectors.
ALTEFF has a very impressive track record of generating superior long term returns as compared to its benchmark and many of its category peers. The fund management resists from engaging in undue risk and focuses on quality stocks with high growth potential to limit downside. Although ALTEF holds a compact portfolio, it is not too concentrated to any selective stocks. However, on a broader allocation, the exposure to a few sectors like Financial Services and Infotech is considerably high, which can result in short term volatility if these sectors witness a rough patch.
Mr Jinesh Gopani has been at helm of the scheme since 2011, whose convictions have played out well in the past and are expected to do so in the future as well. This makes ALTEF suitable for investors with high risk appetite and an 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