Welcome PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Quant Tax Plan, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Quant Tax Plan is an actively managed Tax Saving Mutual Fund (ELSS) that has gained traction by registering stellar performance in the last few years to reward investors with extraordinary risk-adjusted returns.

What is the growth of Rs 10,000 invested in Quant Tax Plan five years ago?

Past performance is not an indicator of future returns
Data as of August 09, 2023
(Source: ACE MF) 

Quant Tax Plan, the erstwhile Escorts Tax Plan, was launched in March 2000 by Escorts Mutual Fund. The AMC was later acquired by the Quant Group in 2018, and the scheme was renamed as Quant Tax Plan. Notably, Quant Tax Plan witnessed significant underperformance between 2017-2019. Nonetheless, the fund registered a turnaround phase in recent years and handsomely rewarded its investors. Quant Tax Plan follows an active investment approach whereby it constantly hunts for attractive opportunities, which has helped it to generate remarkable alpha in recent years and handsomely rewarded its investors. Consequently, its AUM has grown from just Rs 327 crore as of July 2021 to Rs 4,434 crore as of July 2023. The fund’s relatively small corpus gives it the advantage of easy liquidation and the ability to quickly shift allocation in line with dynamic market conditions. In the last five years, Quant Tax Plan has registered growth at a CAGR of 25.2%, compared to a growth of 13% in its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in Quant Tax Plan five years back would have now tripled to Rs 30,580 against a valuation of Rs 18,323 in its benchmark index.

How has Quant Tax Plan performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Tax Plan	4,434	17.36	15.18	38.02	25.19	21.57	19.75	0.46
Bandhan Tax Advt (ELSS) Fund	5,014	22.39	15.93	33.05	16.58	17.50	16.33	0.46
Franklin India Taxshield	5,250	20.64	14.16	28.85	13.36	13.07	16.40	0.38
Nippon India Tax Saver (ELSS) Fund	12,634	17.05	13.45	28.09	10.03	10.14	15.58	0.39
HDFC TaxSaver	11,296	21.84	18.35	27.85	12.66	13.30	13.82	0.43
Mahindra Manulife ELSS Fund	649	17.53	13.55	27.76	14.75	—	15.09	0.40
SBI Long Term Equity Fund	15,374	27.23	17.26	27.39	15.33	13.94	14.78	0.41
JM Tax Gain Fund	87	21.49	13.76	26.88	15.21	15.92	16.24	0.37
Bank of India Tax Advantage Fund	841	20.19	10.42	26.87	16.22	17.40	15.60	0.39
DSP Tax Saver Fund	11,303	18.48	11.11	26.81	15.62	15.45	14.80	0.39
NIFTY 500 – TRI		14.44	11.66	24.01	12.95	13.98	15.17	0.35

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of August 09, 2023
(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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Quant Tax Plan has recorded extraordinary performance in the last few years. In the last 3-year period, Quant Tax Plan has generated a lead of 14 percentage points in CAGR over the benchmark Nifty 500 – TRI, which is unmatched by any of the schemes in the ELSS category. With the recent superior performance, Quant Tax Plan tops the returns chart by a wide margin across most time frames.

Due to its agile investment strategy, the volatility registered by the fund is higher than the benchmark and most of its peers. Nonetheless, the remarkable returns generated by the fund have helped it score high on risk-reward parameters. The Sharpe ratio of the fund, as denoted by its risk-adjusted returns, is currently one of the highest in the ELSS category.

[Read: 3 Best ELSS to Invest in 2023 – Top Performing Tax Saving Mutual Funds in India]

What is the investment strategy of Quant Tax Plan?

Categorised under ELSS, Quant Tax Plan has the mandate to invest at least 80% of its assets in equity and equity-related instruments across market segments. Accordingly, it aims to hold a well-diversified portfolio that is market cap and sector agnostic, and remains fully invested in equities.

Quant Tax Plan selects stocks by analysing them on its proprietary VLRT framework, viz. Valuations, Liquidity, Risk, and Timing. Here are the key features of the framework:

Valuation Analytics: Knowing the difference between price and value

Liquidity Analytics: Understanding the flow of money across asset classes

Risk Appetite Analytics: Perceiving what drives market participants to certain actions and reactions

Time: Being aware of the cycles that govern how the other three dimensions interact

This framework enables the scheme to understand the various investment trends, thereby allowing it to select high-growth potential stocks. Quant Tax Plan follows an aggressive investment approach wherein it constantly looks for opportunities to generate high alpha. In other words, the fund holds many of its stocks with a short-term view, and as a result, the fund has recorded a high portfolio turnover of around 80-160% in the last one year.

What are the top portfolio holdings in Quant Tax Plan?

Holding in (%) as of July 31, 2023
(Source: ACE MF) 

Quant Tax Plan usually holds 40-50 stocks in its portfolio. As of July 31, 2023, Quant Tax Plan held 41 stocks in the portfolio consisting mainly of large-cap stocks. It also held significant exposure of around 30% in mid-cap and small-cap stocks. The top 10 stocks accounted for 58.6% of its assets and included names like HDFC Bank, Reliance Industries, NTPC, DLF, and SBI.

In the last two years, Quant Tax Plan benefitted the most from its holdings in L&T, SBI, Linde India, NTPC, IRB Infrastructure Developers, Dr Reddy’s Laboratories, Tata Consumer Products, and Bosch, among others. Meanwhile, it booked profit in VRL Logistics, Bharti Airtel, Aegis Logistics, and ITC.

In terms of sectors, Quant Tax Plan has higher exposure to Banking & Finance that forms nearly one-fourth of its assets. Pharma, Petroleum, Construction, Metals, and Power are the other core sectors in the fund’s portfolio, having allocation in the range of 6-10%. It also holds diversification to Infotech, Engineering, Cement, and Consumption, among others.

Is Quant Tax Plan suitable for my investment goals and risk tolerance?

Quant Tax Plan has recorded stellar performance in recent years, while its returns in the past have been satisfactory. The fund stood strong during the 2020 market crash, wherein it outpaced the benchmark and many of its peers. Moreover, the fund topped the category returns in the ensuing bull phase, thereby generating significant alpha for its investors. Quant Tax Plan is quick in its approach to shift allocation between market caps and sectors depending on the market conditions.

Though the volatility registered by Quant Tax Plan is on the higher side, it has generated a higher premium for the level of risk taken. The active investment strategy of identifying multi-bagger stocks has resulted in superior returns for investors in Quant Tax Plan.

The aggressive investment strategy and significant exposure to stocks in the lower market cap makes Quant Tax Plan suitable only for investors with a very high risk appetite and an investment horizon of at least 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