We are slowly approaching the second half of the financial year 2022-23. Many of us often delay our tax saving plans and keep on procrastinating until the last quarter of the financial year. I believe that the plans for tax savings should not be kept until the last moment. It may be an apt time for you as an investor to start thinking and begin with your tax saving exercise for the current financial year.

ELSS, also known as Tax-saving Mutual Fund, offers income tax saving benefits to investors. They are a type of diversified equity mutual funds that qualify for tax exemption under Section 80C of the Income Tax Act.

DSP Tax Saver Fund is one such ELSS. The fund aims to identify growth-oriented stocks with an eye on valuation and has generated a reasonable lead over the benchmark and many of its peers in the long run.

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

Past performance is not an indicator of future returns
Data as on September 20, 2022
(Source: ACE MF) 

Launched in January 2007, DSP Tax Saver Fund is an ELSS that invests in a well-diversified portfolio of stocks spread across large-cap, mid-cap, and small-cap segments. It seeks to invest predominantly in the best ideas across established and emerging businesses to provide a combination of growth and stability. DSP Tax Saver Fund evaluates stocks from the investment universe based on their growth prospects, fundamental attributes, and valuation metrics. As a part of its risk management process, DSP Tax Saver Fund constantly monitors the stock performance against the changes in its fundamentals. The fund uses a blend of investment styles and invests across market cap range to make the portfolio durable in the long term and do well across market cycles. The fund manager follows an active investment approach to hunt for various opportunities with an eye on valuation. This strategy has enabled the fund to generate a reasonable lead over its benchmark Nifty 500 – TRI as well as its prominent peers. In the last five years, DSP Tax Saver Fund grew at a CAGR of 13.7%, which is slightly higher than the 12.9% CAGR generated by the benchmark over the same time period. An investment of Rs 10,000 in DSP Tax Saver Fund five years ago would have now grown to Rs 19,039.

Table: DSP 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	1,787	25.23	50.05	44.40	24.24	25.41	26.42	0.39
Bank of India Tax Advantage Fund	645	2.08	29.52	27.44	15.64	16.72	21.33	0.30
IDFC Tax Advt (ELSS) Fund	3,851	11.05	36.69	25.12	14.40	16.15	25.81	0.26
Canara Rob Equity Tax Saver Fund	4,198	4.92	28.78	24.53	17.05	16.01	21.33	0.28
Mirae Asset Tax Saver Fund	13,148	2.94	29.02	22.94	16.20	—	23.21	0.25
Union Long Term Equity Fund	553	6.14	29.00	22.34	13.79	12.59	21.84	0.25
Kotak Tax Saver Fund	2,936	10.68	30.35	22.01	14.35	15.39	22.27	0.24
PGIM India ELSS Tax Saver Fund	416	8.69	31.98	21.76	13.85	—	22.46	0.24
UTI LT Equity Fund (Tax Saving)	2,997	2.67	28.30	21.20	13.24	13.60	22.67	0.23
DSP Tax Saver Fund	10,219	4.51	30.98	21.03	13.74	15.99	22.91	0.23
NIFTY 500 – TRI		5.68	28.63	20.10	12.89	14.17	23.13	0.22

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 September 20, 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.

DSP Tax Saver Fund holds a reasonable long-term track record. The fund has delivered market-beating performance and stands among the above-average performers across most time periods. In the last 2-year and 3-year periods, DSP Tax Saver Fund has maintained a significant lead of about 1-2.5 percentage points over the benchmark and outpaced many of its peers. Its robust performance in the last couple of years has helped scale up its long-term returns. Over the longer 5-year and 7-year period, the fund has generated a decent lead over the benchmark and the category average.

Despite following an active investment strategy, DSP Tax Saver Fund has managed to limit the risk. The volatility registered by the fund (22.91%) is nearly in line with the category average and the benchmark index. Its Sharpe Ratio (0.23) signifies that the fund’s risk-adjusted returns are better than many of its prominent category peers and ahead of the benchmark.

Investment strategy of DSP Tax Saver Fund

DSP Tax Saver Fund is an equity-linked saving scheme that follows a multi-cap approach to investing across large, mid, and small-cap stocks. The fund uses a blend of growth drivers and valuation metrics to determine the attractiveness of the stocks. It invests 65-75% of its assets in stocks with strong business fundamentals and growth prospects with the remaining 25-35% in companies having potential for valuation re-rating from business turnarounds and those available at deep values.

DSP Tax Saver Fund’s portfolio is diversified across various sectors to make it durable. It uses the top-down approach to assess the overall attractiveness of the sectors and to take the underweight/overweight position in the respective sectors. The fund endeavours to hold a maximum of 60-65 stocks in its portfolio. While picking stocks, the fund managers give consideration to stocks with low price-to-earnings, price-to-book, and price-to-sales ratios, as well as improving margins, asset turns, and cash flows, amongst others.

The company-wise analysis focuses on the historical and current financial condition of the company, potential value creation/unlocking of value and its impact on earnings growth, capital structure, business prospects, policy environment, the strength of management, responsiveness to business conditions, product profile, brand equity, market share, competitive edge, research, technological know-how and transparency in corporate governance, among other factors.

Graph 2: Top portfolio holdings in DSP Tax Saver Fund

Holding in (%) as of August 31, 2022
(Source: ACE MF) 

DSP Tax Saver Fund usually holds a fairly large portfolio of around 55-60 stocks. As of August 31, 2022, the fund held as many as 55 stocks in its portfolio, with the top 10 stocks together constituting around 46.1% of its assets. ICICI Bank is currently the top holding with an allocation of 9.4%, followed closely by HDFC Bank, Infosys, Axis Bank, and SBI. Notably, 4 out of the top 5 stocks in the portfolio belong to the banking sector. Though DSP Tax Saver Fund tends to frequently churn a significant portion of its holdings, it has shown patience with many of its core stock holdings.

In the last one year, DSP Tax Saver Fund has benefitted the most from its holdings in ICICI Bank, SBI, GHCL, Century Plyboards (India), NTPC, and Bharat Electronics, among others. It booked profits in Cholamandalam Investment & Finance Co., KEI Industries, L&T, and Kotak Mahindra Bank, among others.

In terms of sector, Financials top the list of allocation with an allocation of 37.5%, which includes exposure of 28.6% in Banks and 8.9% in Finance. Infotech, Auto, Pharma, Engineering, and Consumption are the other core holdings in the fund’s portfolio having allocation in the range of 4-10%. The top 10 sectors together account for around 80.9% of its assets. Around half of DSP Tax Saver Fund’s portfolio is invested in cyclical sectors with a balance in defensive and sensitive sectors.

Suitability

DSP Tax Saver Fund is an actively managed fund and agile in its approach, which enables it to take advantage of various investment opportunities present across market caps and sectors and accordingly maintains a diversified portfolio of stocks. The fund managers seek growth and value while picking stocks for the investment portfolio. They do not resist churning the portfolio to cash in on the available opportunities. The strategy has enabled the fund to reward investors handsomely over longer periods in the past.

While DSP Tax Saver Fund’s performance has not been among the best during bearish market phases when compared to its peers, it is reasonable relative to the benchmark. The fund’s performance during the bull market phases is commendable wherein it has managed to maintain a noticeable lead over the benchmark and has also outpaced many of its prominent peers. The fund has shown the potential to do well over complete market cycles.

DSP Tax Saver Fund is suitable for investors looking for an actively managed tax-saving fund and benefits under section 80C with a time horizon of at least 3 to 5 years.

This article first appeared on PersonalFN here