The tax saving season for FY 2020-21 is drawing to a close. If you are yet to complete your tax saving exercise for the financial year, you need to do it at the earliest to avoid higher tax liability.
Investment in tax saving mutual fund, also known as Equity Linked Saving Scheme (ELSS), is one investment avenue you can consider for your tax saving needs. ELSS comes with the dual advantage of equity investing and tax saving. ELSS has the lowest lock-in period of three years compared to other tax-saving instruments. In addition, it has the potential to give a boost to your wealth creation journey.
But do note that since ELSS invest predominantly in equities with the flexibility to invest across market capitalisation it is only suitable if you have the appetite to bear market volatility to earn higher returns.
Canara Robeco Equity Tax Saver Fund (CRETS) is one of such ELSS that has a long term track record of generating superior returns over its benchmark.
Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Tax Saver Fund 5 years ago
Data as on March 03, 2021
(Source: ACE MF)
Launched way back in May 1993, CRETS is one of the oldest schemes in the tax saving funds category. In the past, the fund has proven its ability to outperform during bull market phases, while it is also capable of limiting the downside risk during bear market phases. In the last 5 years, CRETS has appreciated at a compounded annualised growth rate (CAGR) of 20.01%, outpacing its benchmark S&P BSE 100 – TRI index by around 3 percentage points CAGR. An investment of Rs 10,000 in the fund 5 years back would have been now worth Rs 24,907, as against Rs 21,850 for the simultaneous investment in its benchmark. Although the fund has struggled against the benchmark for most of this period, it has shown a turnaround performance in the last one and a half year. CRETS now stands strong among the top quartile performers in the ELSS category and has improved in terms of generating superior risk adjusted returns for its long term investors.
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|
|Quant Tax Plan||49||77.13||36.48||21.08||23.63||25.09||25.41||0.180|
|Canara Rob Equity Tax Saver Fund||1,538||40.70||27.72||19.38||20.01||18.98||21.31||0.196|
|Mirae Asset Tax Saver Fund||5,648||46.33||27.86||18.88||24.63||—||22.76||0.176|
|Axis Long Term Equity Fund||25,508||29.09||24.36||16.67||18.50||21.25||20.76||0.160|
|Kotak Tax Saver Fund||1,540||33.36||22.48||15.27||18.52||19.72||21.73||0.137|
|JM Tax Gain Fund||47||34.06||23.95||15.09||19.69||20.20||23.25||0.138|
|DSP Tax Saver Fund||7,332||36.50||23.75||14.57||19.04||19.94||22.88||0.125|
|Invesco India Tax Plan||1,377||31.07||21.94||14.46||18.35||20.16||21.23||0.136|
|BOI AXA Tax Advantage Fund||368||41.91||32.07||14.27||20.41||19.27||22.00||0.126|
|BNP Paribas Long Term Equity Fund||476||31.19||23.61||14.16||15.63||17.94||19.09||0.134|
|S&P BSE 100 – TRI||37.08||19.60||14.02||16.91||15.49||22.01||0.128|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 03, 2021
(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 overall performance in the long term. In the last 2-years, CRETS has generated returns at 27.7% CAGR as compared to 19.6% CAGR registered by it benchmark S&P BSE 100 – TRI.
The fund has outscored the benchmark and category average by a remarkable margin and has turned out to be the top performers in the category. Its returns over the longer time horizon is reasonable, where the fund has overshadowed many of its prominent peers and delivered returns higher than the benchmark.
CRETS has shown lower volatility in performance relative to the benchmark and the category average. Its Sharpe Ratio indicates risk-adjusted returns among the best in the category and 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 for 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 the 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 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 it invests 65-70% of its asset with significant allocation of around 20% in mid-caps and up to 10% in small-caps.
Graph 2: Top portfolio holdings in Canara Robeco Equity Tax Saver Fund
Holding in (%) as on January 31, 2021
(Source: ACE MF)
CRETS usually holds a well-diversified portfolio spread across market caps. As on January 31, 2021, the fund held 54 stocks in its portfolio with top holding in large cap names like Infosys, ICICI Bank,HDFC Bank, L&T, SBI, etc. The top 10 holdings in the portfolio together accounted for around 48% of its assets. Having an active portfolio management, the level of churning in the fund’s portfolio is on the higher side. The turnover ratio of the portfolio is currently in the range of 150% to 170%.
The fund’s encouraging performance in the last one year has been driven by stocks like Infosys, Divis Laboratories, L&T Infotech, Reliance Industries, Honeywell Automation India, HDFC Bank,among others. In the recent past, the fund managers have booked substantial profits in names like Escorts, Abbott India, HDFC Life Insurance Co., Alkem Laboratories, Atul, etc.
In terms of sector holdings, CRETS maintains a mix of Defensives and Cyclicals in the portfolio. Banking and Finance stocks together form around 36% of its portfolio, while Infotech follows with an allocation of 18.7%. In addition to this, Consumer Durables, Engineering, Consumption, and Pharma are among the other core sectors in the portfolio. Over 70% of its portfolio is concentrated across the top 5 sectors.
CRETS maintains a well-diversified portfolio of quality stocks with a long-term 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. The active investment style the fund follows helps it take advantage of sector rotations during positive as well as negative market conditions, and even improves its chances of riding out tough market conditions.
The fund has the ability to deliver strong returns in the future as well and rank high in terms of generating superior risk-adjusted returns for its investors. The current fund managers – Ms Cheenu Gupta and Mr Shridatta Bhandwaldar have done well to turnaround the fortune of the fund and maintain its performance even in highly volatile market conditions.
CRETS is suitable for investors looking to invest in tax saving mutual fund having superior growth potential.
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