The deadline to invest in tax-saving instruments for financial year 2021-22 is just three months away. You can explore and choose from various tax-saving investment options such as Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), National Pension Scheme (NPS), etc.
If you are looking to invest in a pure equity avenue for tax saving needs, then ELSS (tax saving mutual fund) is your best bet. Notably, most other tax-saving instruments invest in fixed income securities, or a combination of equity and debt instruments.
Thus, when you invest in ELSS, you get the dual benefit of tax saving as well as the long term growth potential of equities. However, it is important that you select the best ELSS for your tax saving needs since not all schemes in the category may help you create significant wealth.
Canara Robeco Equity Tax Saver Fund is a lesser-known tax saving fund that has made it to the list of category outperformers in the last few years and rewarded investors with superior risk-adjusted returns.
Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Tax Saver Fund 5 years ago
Data as on December 22, 2021
(Source: ACE MF)
Launched way back in May 1993, Canara Robeco Equity Tax Saver Fund is one of the oldest schemes in the tax saving mutual funds category. Although the fund struggled to keep pace with its benchmark in the past, it has shown a turnaround performance in the last few years. During the market crash of 2020, the fund outperformed the benchmark S&P BSE 500 – TRI by a CAGR of around 8 percentage points and the category average by nearly 5 percentage points. In the current bull phase Canara Robeco Equity Tax Saver Fund has outpaced many of its prominent peers and stood ahead of the benchmark. Canara Robeco Equity Tax Saver Fund now stands strong among the top quartile performers in the ELSS category and has rewarded its long-term investors with superior risk-adjusted returns. In the last 5 years, Canara Robeco Equity Tax Saver Fund has appreciated at a CAGR of 22% CAGR, better than the 18% CAGR generated by its benchmark. An investment of Rs 10,000 invested in the fund 5 years back would have now appreciated to Rs 27,035, as against Rs 22,931 for the simultaneous investment in its benchmark.
Table: Canara Robeco Equity Tax Saver Fund’s performance vis-a-vis category peers
|Quant Tax Plan
|BOI AXA Tax Advantage Fund
|Canara Rob Equity Tax Saver Fund
|Mirae Asset Tax Saver Fund
|IDFC Tax Advt(ELSS) Fund
|Union Long Term Equity Fund
|DSP Tax Saver Fund
|JM Tax Gain Fund
|UTI LT Equity Fund (Tax Saving)
|PGIM India LT Equity Fund
|S&P BSE 500 – TRI
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 22, 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.
Canara Robeco Equity Tax Saver Fund has recorded exceptional performance over the last few years that has helped scale up its performance over the long term. With a CAGR of 31% in the last 2 years, the fund has outscored the benchmark and category average by a remarkable margin and has turned out to be one of the top performers. Over the longer time horizon of 5 years and 7 years, Canara Robeco Equity Tax Saver Fund has beaten some of the popular category peers with a noticeable margin and delivered returns higher than the benchmark.
Moreover, the fund has generated superior risk-adjusted returns for its investors. With a standard deviation of 20.33%, the fund has shown lower volatility in performance. Its Sharpe Ratio (0.28) indicating risk-adjusted returns is among the best in the ELSS category and far better than the benchmark.
Investment strategy of Canara Robeco Equity Tax Saver Fund
Canara Robeco Equity Tax Saver Fund is an actively managed fund that focuses on growth-oriented investment style with an aim to generate long term capital appreciation. It focuses on 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. Canara Robeco Equity Tax Saver Fund 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 sound 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. Canara Robeco Equity Tax Saver Fund holds a pre-dominant large-cap portfolio, where it invests about 70% of its assets along with a maximum of 30% into mid- and small-caps.
Graph 2: Top portfolio holdings in Canara Robeco Equity Tax Saver Fund
Holding in (%) as of November 30, 2021
(Source: ACE MF)
Canara Robeco Equity Tax Saver Fund usually holds a well-diversified portfolio spread across market caps but with a large-cap bias. As of November 30, 2021, the fund held 58 stocks in its portfolio with top holding in large-cap names like Infosys, HDFC Bank, ICICI Bank, L&T, HDFC, etc. The top 10 holdings in the portfolio together accounted for around 45.5% of its assets. The fund follows an active investment approach and therefore, at times the portfolio turnover is on the higher side.
The encouraging performance of the fund in the last one year has been driven by stocks of Infosys, ICICI Bank, Persistent Systems, TCI Express, SBI, Bajaj Finance, Mphasis, among others. Meanwhile, the fund booked substantial profits in names like Polycab India, Dr Reddy’s Laboratories, JK Cement, Balkrishna Industries, Info Edge (India), Crompton Greaves Consumer Electricals, among others.
In terms of sector holdings, Canara Robeco Equity Tax Saver Fund maintains a mix of Defensives and Cyclicals in the portfolio. Banking and Finance stocks together form around 31.6% of its portfolio while Infotech follows with an allocation of 13.5%. Auto & Auto Ancillaries, Consumption, Engineering, Pharma, Petroleum, and Cement were among the other core sectors in the portfolio. The top 5 sectors account for 60.7% of its assets.
Canara Robeco Equity Tax Saver Fund 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 fund has been agile enough to take advantage of sector rotations during positive as well as adverse market conditions that enables it to do well across market conditions.
The sound risk management techniques followed at the fund house has helped Canara Robeco Equity Tax Saver Fund do well to curb the downside risk in the recent market crash of 2020. Moreover, the fund has actively participated the recovery phase to outpace many of its prominent peers.
Canara Robeco Equity Tax Saver Fund is suitable for investors looking for a relatively stable fund for their tax saving needs along with capital appreciation over a long term 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