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

Parag Parikh Tax Saver Fund is a value-centric ELSS (Tax Saving Mutual Fund) that focuses on high-conviction quality stocks. The fund has swiftly garnered a commendable track record, earning a spot among the top-quartile performers in its category.
 

What is the growth of Rs 10,000 invested in Parag Parikh Tax Saver Fund five years ago?

Past performance is not an indicator of future returns
Data as of January 23, 2024
(Source: ACE MF, data collated by PersonalFN) 

One of the most recent entrants in the ELSS category, Parag Parikh Tax Saver Fund aims to create a diversified portfolio that includes large, mid, and small-sized companies in India, spanning various sectors and industries. The fund places its primary emphasis on sectors and industries that exhibit appealing valuations, and steers clear of businesses, sectors, or themes driven by short-term momentum.

Launched in July 2019, Parag Parikh Tax Saver Fund holds a short track record of just over four years, during which it has demonstrated outstanding performance, capturing the attention of investors. The fund’s emphasis on high-potential quality stocks with a decent margin of safety has effectively minimised the overall volatility and contributed to its impressive performance. This approach has led to the generation of superior risk-adjusted returns for its investors.

During the 2020 market crash, Parag Parikh Tax Saver Fund successfully mitigated the downside, and also emerged as one of the top performers in the category during the subsequent bull phase. Consequently, the fund currently ranks among the top quartile performers in the ELSS category and has also generated substantial alpha over the benchmark.

Since its inception, Parag Parikh Tax Saver Fund has registered growth at a CAGR of 24.4%, compared to a growth of 19.1% CAGR registered by its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in the fund at the inception would have now appreciated to Rs 26,692 as against a valuation of Rs 21,971 for a simultaneous investment in its benchmark.

How has Parag Parikh Tax Saver Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant ELSS Tax Saver Fund	6,416	15.05	18.24	39.63	25.35	22.68	18.43	0.40
Bandhan ELSS Tax Saver Fund	5,749	17.80	15.41	31.28	16.27	17.75	15.07	0.37
Parag Parikh ELSS Tax Saver Fund	2,563	17.94	16.45	27.13	—	—	11.09	0.43
HDFC ELSS Tax Saver Fund	13,086	20.48	17.77	26.70	12.97	13.79	13.38	0.41
SBI Long Term Equity Fund	18,715	23.72	16.22	26.50	15.20	14.31	14.23	0.38
Mahindra Manulife ELSS Tax Saver Fund	756	16.24	13.40	26.21	14.83	14.66	14.48	0.33
Franklin India ELSS Tax Saver Fund	5,962	17.42	13.43	26.21	13.69	13.57	14.90	0.33
Bank of India ELSS Tax Saver Fund	1,040	18.36	12.17	26.16	17.56	18.35	15.63	0.32
PGIM India ELSS Tax Saver Fund	634	14.14	13.41	25.88	15.53	15.89	13.19	0.31
Nippon India ELSS Tax Saver Fund	14,028	15.44	13.00	25.36	9.87	10.56	14.89	0.33
NIFTY 500 – TRI		13.21	10.77	22.98	13.58	14.61	14.59	0.27

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of January 23, 2024
(Source: ACE MF, data collated by PersonalFN)
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.

Within a brief timeframe, Parag Parikh Tax Saver Fund has swiftly carved out a distinguished track record, standing resilient against its larger and more popular peers. Notably, the fund has consistently outperformed the category average as well as the benchmark by a significant margin across various time periods.

Parag Parikh Tax Saver Fund’s returns on a rolling basis over the past one year is noteworthy as some prominent schemes in the category have been struggling to keep pace with the benchmark. Over the last 2-year and 3-year periods, the fund has generated average rolling returns at a CAGR of around 16.5% and 27.1%, respectively, which is among the highest in the category and has outpaced the benchmark by a margin of around 4% to 5.5% percentage points in CAGR.

More importantly, Parag Parikh Tax Saver Fund has achieved this accomplishment while keeping risk at a reasonable level. The volatility registered by the fund is the lowest in the ELSS category and notably, it is much lower compared to the benchmark. Its exceptional risk-adjusted return, as denoted by the Sharpe Ratio of 0.43, is currently among the best in the category, surpassing the benchmark by a considerable margin.

What is the investment strategy of Parag Parikh Tax Saver Fund?

Categorised as an ELSS, Parag Parikh Tax Saver Fund is mandated to invest at least 80% of its assets in Indian equities. The fund has the flexibility to invest across market caps and sectors without any limit of restriction. Guided by the principles of value investing, the fund looks to avoid momentum bets as well as stocks that are overvalued. Instead, the fund focuses on fundamentally sound, low debt, and cash-generating businesses available at reasonable valuations.

Parag Parikh Tax Saver Fund adopts the bottom-up approach to invest in high-quality stocks for a longer period and aims to realise the full potential of each of its stock holdings. The fund has the flexibility to invest across market caps. At present, it holds a large-cap-biased portfolio with significant exposure to small-caps and some exposure to mid-cap stocks.

The fund follows a ‘buy-and-hold’ investment strategy and holds each of its high-conviction stocks with a long-term view. Accordingly, Parag Parikh Tax Saver Fund has recorded a low turnover ratio of less than 5% in the last one year.

What are the top portfolio holdings in Parag Parikh Tax Saver Fund?

Holding in (%) as of December 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

Parag Parikh Tax Saver Fund usually holds a compact portfolio of 25-35 stocks. As of December 31, 2023, the fund held 34 stocks in its portfolio, with the top 10 stocks accounting for about 55.8% of its holdings. The top holdings consist mainly of large-cap names such as HDFC Bank, Bajaj Holdings & Investment, Coal India, Power Grid Corporation of India, and HCL Technologies. The fund’s exposure to individual mid and small-cap stocks is restricted to below 3%.

In the last two years, Parag Parikh Tax Saver Fund benefitted the most from its exposure in ITC, Bajaj Holdings & Investment, Axis Bank, Power Grid Corporation, and Multi Commodity Exchange. Apart from these, Maruti Suzuki India, ICICI Bank, ICRA, CCL Products (India), HCL Technologies, and Motilal Oswal Financial Services were among the other top gainers in the fund’s portfolio.

Parag Parikh Tax Saver Fund’s portfolio is diversified across 10 sectors and has a well-balanced allocation across cyclical and defensive sectors. Its portfolio is skewed towards Banking & Finance and Infotech stocks, constituting approximately 49% of its total assets. It also held substantial exposure to Auto & Auto Ancillaries, Mining, Power, Consumption, and Pharma sectors. The top 5 sectors in the portfolio collectively form nearly 65% of its assets.

Is Parag Parikh Tax Saver Fund suitable for my investment goals and risk tolerance?

Displaying outstanding performance since its inception in July 2019, Parag Parikh Tax Saver Fund has built a solid track record in a relatively shorter time span. The fund has stood strong alongside its well-known counterparts in the category, instilling confidence among investors. The fund’s success can be attributed to its capability to identify and invest in fundamentally sound, undervalued stocks in a timely manner.

The fund managers do not compromise on the risk factors for the sake of higher returns; instead, they uphold a diversified portfolio of high-quality stocks with a focus on the long term.

Value investing demands patience, and Parag Parikh Tax Saver Fund adheres to this principle. While it might encounter brief periods of underperformance, especially during growth-oriented market upswings, the fund is poised to deliver substantial returns over the complete market cycle.

Parag Parikh Tax Saver Fund is suitable for investors looking for a cautiously managed ELSS with a longer time horizon of at least 5 to 7 years.

Watch this video to find out the list of the best ELSS for 2024:

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