Many of us delay our tax saving plans till the last quarter of the year. However, postponing it till the last moment is not a prudent practice. If you have not initiated your tax saving plan for the current financial year, start now, before it’s too late.
Equity-linked saving schemes (ELSS) are equity-oriented mutual funds that offer tax saving benefits to investors. Popularly known as tax saving funds, the category predominantly invests in equities to generate growth by way of long-term capital appreciation for investors.
When you invest in a tax saving mutual fund, the amount invested (up to Rs 1.5 lakh in a financial year) is eligible for tax exemption under section 80C of the Income Tax Act. Moreover, these mutual funds come with a lock-in period of 3 years. The lock-in is lower in comparison to traditional tax-saving instruments such as Provident Fund, Bank Fixed Deposit, etc.
Axis Long Term Equity Fund is a popular tax saving mutual fund. The fund has been efficient in generating returns superior to its benchmark and the category peers. It also stands out for its ability to manage downside risk.
Graph 1: Growth of Rs 10,000 if invested in Axis Long Term Equity Fund 5 years ago
Data as on July 20, 2021
(Source: ACE MF)
Axis Long Term Equity Fund is the most popular and largest fund in the ELSS category. Launched in December 2009, it has a track record of over a decade. The fund focuses on high-quality businesses having strong long term growth prospects. It seeks to invest in a well-diversified portfolio of companies having sustainable business models. Axis Long Term Equity Fund seeks opportunities predominantly in large-cap stocks. In addition, it has a significant allocation to mid-caps. Belonging to a process-driven fund house, the fund managed to limit downside during bear phases and it has participated well during upside rallies in the past. This has enabled it to generate significant gains for investors. Axis Long Term Equity Fund’s NAV has doubled in the last five years growing at a compounded annualized growth rate (CAGR) of 16.9%. An investment of Rs 10,000 in the fund five years back would now have grown to Rs 21,843. A simultaneous investment in its benchmark would now be worth Rs 19,892.
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|
|Quant Tax Plan||258||112.63||50.00||32.91||24.90||24.46||25.88||0.30|
|Mirae Asset Tax Saver Fund||8,338||61.48||28.93||22.37||22.07||—||22.79||0.23|
|Canara Rob Equity Tax Saver Fund||2,343||57.06||29.41||20.70||18.48||15.74||21.51||0.23|
|DSP Tax Saver Fund||8,963||59.43||27.04||19.62||17.12||16.75||22.95||0.20|
|Kotak Tax Saver Fund||2,073||53.90||23.94||18.22||16.45||16.86||21.85||0.20|
|Invesco India Tax Plan||1,708||52.06||25.84||16.17||16.87||16.99||21.59||0.17|
|Axis Long Term Equity Fund||30,520||51.45||23.98||15.83||16.90||17.18||20.91||0.17|
|SBI Long Term Equity Fund||10,169||51.95||21.68||15.66||12.50||12.15||22.62||0.16|
|ICICI Pru LT Equity Fund (Tax Saving)||8,965||51.77||20.10||14.72||13.74||13.48||22.97||0.15|
|Aditya Birla SL Tax Relief '96||14,044||34.59||17.81||10.14||12.98||14.47||20.51||0.09|
|S&P BSE 200 – TRI||48.74||20.99||14.56||14.74||13.11||22.43||0.16|
Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on July 20, 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.
Axis Long Term Equity Fund has a very impressive long term record of generating superior returns compared to its benchmark and category peers. Even though the fund has significantly trailed the benchmark and the category average in the current bull phase, it has the ability to bounce back sharply. Its ability to efficiently contain the downside risk sets it apart from its peers. Over the long term horizon of 7-year period, the fund found its place among the top quartile performers in the category.
Axis Long Term Equity Fund has shown a fair level of stability in performance even in extreme conditions. The volatility registered by the fund is lower than many of its prominent peers as well as the benchmark. Its risk-adjusted return as denoted by Sharpe Ratio is well above the category average and the benchmark.
Investment strategy of Axis Long Term Equity Fund
Classified under ELSS Funds category, Axis Long Term Equity Fund has a mandate 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. It has the flexibility to invest across the market cap spectrum. The fund maintains a large cap bias and looks to invest 50-100% of its assets in the segment. It also holds significant allocation in mid-caps, limiting the exposure to 50% of its assets. 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.
While selecting stocks, Axis Long Term Equity Fund focuses on long term earnings growth prospects and quality as key criteria. Accordingly, it builds the portfolio 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 June 30, 2021
(Source: ACE MF)
Despite having a large corpus of over Rs 30,500 crore, Axis Long Term Equity Fund holds a compact portfolio of 30-35 stocks. As on June 30, 2021, it held 29 high conviction stocks in its portfolio. The top 10 holdings in the portfolio accounted for 61.3% of its assets. Bajaj Finance is the top holding in the portfolio having an allocation of 9.3%, followed by TCS and Avenue Supermarts, with respective allocation of 8.2% and 7.6%. Most stocks in the portfolio have been part of its holding for more than two years.
In the last one year, the fund has benefited immensely from its significant holdings in companies like Bajaj Finance, Info Edge (India), TCS, Divi’s Laboratories, Motherson Sumi Systems, Avenue Supermarts, HDFC Bank, Astral, Pidilite Industries, among others.
Axis Long Term Equity Fund invests in a mix of cyclicals and defensives. It has placed heavy bets on Banking and Finance that together account for nearly one third of its total assets. Infotech has the next highest allocation, followed by Retail, Pharma and Auto ancillaries.
Among the other prominent holdings are sectors like Consumption, Chemicals, Auto, and Power. These top 10 sectors constitute 87.6% of the portfolio. Axis as a fund house avoids investing in PSUs, highly cyclical, and highly regulated sectors.
Axis Long Term Equity Fund has a long term record of superior returns compared to its benchmark and many of its category peers. The fund management resists from engaging in undue risk, which enables it to limit the downside risk during stressed market conditions. Its emphasis on picking quality stocks having high growth potential has resulted in healthy returns across market cycles in the past.
The fund has an experienced fund manager at helm, Mr Jinesh Gopani, whose convictions have played out well in the past. The fund employs prudent investment strategies and sound risk management techniques. This makes it suitable for investors looking for a relatively stable tax saving fund that has the potential to perform across market conditions and generate market beating returns in the long run.
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