Investors looking for tax saving options for the financial year 2022-23 can consider investing in Equity-linked Saving Scheme (ELSS). Factors such as the lowest lock-in period and higher wealth creation potential compared to other tax-saving instruments make ELSS a worthwhile option.

However, ensure that you do not invest in any ELSS or tax-saving mutual fund scheme just because the Indian equity markets are down by around 8%-9% from their all-time highs. Carefully evaluate the schemes on various quantitative and qualitative parameters to select the best ELSS.

Canara Robeco Equity Tax Saver Fund is an ELSS that has maintained a consistent lead over the benchmark and the category average across various market phases and cycles.

Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Tax Saver Fund 5 years ago

Past performance is not an indicator of future returns
Data as on June 07, 2022
(Source: ACE MF) 

Canara Robeco Equity Tax Saver Fund is one of the oldest schemes in the tax-saving fund category and has a track record of over 29 years to its credit. Since its inception in March 1993, the fund has generated superior returns at about 14.4% CAGR. Although Canara Robeco Equity Tax Saver Fund did struggle initially against the benchmark over this period, 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 remarkable absolute margin of over 7.5 percentage points and the category average by about 4.7 percentage points. In the recent bull phase, it managed to outpace many of its prominent peers though it has slightly trailed the benchmark. In the last 5 years, Canara Robeco Equity Tax Saver Fund has appreciated at a CAGR of around 15.1%, better than the 12.1% CAGR generated by its benchmark S&P BSE 500 – TRI index. An investment of Rs 10,000 in the fund 5 years back would have now appreciated to Rs 20,235, as against Rs 17,524 for the simultaneous investment in its benchmark.

Table: Canara Robeco Equity Tax Saver Fund’s performance vis-á-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Tax Plan	1,316	13.47	60.23	33.85	22.01	21.66	26.55	0.31
BOI AXA Tax Advantage Fund	596	3.17	33.13	21.18	15.50	14.72	21.18	0.23
Mirae Asset Tax Saver Fund	11,963	4.71	34.98	18.54	15.99	—	23.17	0.20
IDFC Tax Advt(ELSS) Fund	3,742	8.75	43.41	18.19	14.00	14.12	26.18	0.18
Canara Rob Equity Tax Saver Fund	3,629	4.40	31.78	17.48	15.13	13.93	21.41	0.19
Union Long Term Equity Fund	497	8.42	31.55	16.73	12.24	10.67	21.69	0.18
DSP Tax Saver Fund	9,811	4.08	32.39	16.49	12.95	14.48	22.74	0.18
PGIM India ELSS Tax Saver Fund	388	8.11	33.97	16.40	13.03	—	22.53	0.17
Mahindra Manulife ELSS Kar Bachat Yojana	462	7.97	33.54	15.99	10.67	—	22.11	0.17
Kotak Tax Saver Fund	2,670	5.89	30.97	15.21	12.44	13.47	22.21	0.17
S&S&P BSE 500 – TRI		4.82	31.38	14.38	12.14	12.53	22.97	0.15

Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 07, 2022
(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 registered exceptional performance over the last few years, which has helped in scaling up its performance over the long term. It has stood out in the tax-saving fund category by limiting the downside during tough market conditions and participating well in the recovery and bull run. With a CAGR of 17.5% in the last 3 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 in the ELSS category. Over the longer time horizon of 5 years and 7 years, Canara Robeco Equity Tax Saver Fund has beaten many 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 21.4%, the fund has shown relatively lower volatility in performance. Its Sharpe Ratio (0.19) indicating its risk-adjusted returns is among the best in the 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 a 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 a top-down and bottom-up approach to stock picking with a preference for high-growth-oriented stocks in attractive-looking sectors. Canara Robeco Equity Tax Saver Fund seeks to benefit from long-term investment due to its lock-in and has a blended portfolio of diversified stocks with the GARP (Growth at Reasonable Price) style of investing.

The fund seeks to identify companies with a 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 analysing the balance sheet. The core focus remains on earnings, growth, and cash flow generating businesses. The fund managers use valuation to play with 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 at least 60% of its asset is invested into large caps and a maximum of 40% into mid and small caps.

Graph 2: Top portfolio holdings in Canara Robeco Equity Tax Saver Fund

Holding in (%) as of April 30, 2022
(Source: ACE MF) 

Canara Robeco Equity Tax Saver Fund usually holds a well-diversified portfolio spread across market caps. As of April 30, 2022, the fund held 53 stocks in its portfolio, with top holding in large-cap names like Reliance Industries, ICICI Bank, Infosys, HDFC Bank, and TCS. The top 10 holdings in the portfolio together accounted for around 43.7% of its assets. Having an active portfolio management strategy, at times, the level of churning in the portfolio is on the higher side. Notably, the turnover ratio of the portfolio has reduced significantly from 130% a year ago to around 50% at present.

In the last one year, Canara Robeco Equity Tax Saver Fund has benefitted from its holdings in ICICI Bank, Infosys, Persistent Systems, L&T, Minda Industries, and SBI, whereas it booked profit in PVR, Zomato, Cipla, Dixon Technologies, Havells India, Jubilant FoodWorks, and Tata Steel.

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 28.6% of its portfolio, while Infotech follows with an allocation of 12.2%. Consumption, Engineering, Petroleum, Pharma, Auto, Cement, etc., were among the other core sectors in the portfolio. About 80.7% of its portfolio was concentrated across the top 10 sectors.

Suitability

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 nimble approach followed by the fund 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. Looking at its past trends, Canara Robeco Equity Tax Saver Fund seems to be well placed to ride the market highs and lows going forward.

The fund managers have done well to turn around the fortune of the fund and maintain its performance even in highly volatile market conditions. This has helped the fund regain its top quartile position in the ELSS space.

Canara Robeco Equity Tax Saver Fund is suitable for aggressive investors looking for a tax-saving investment avenue with a long-term investment horizon of at least 3-5 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